%1

While total bankruptcy petitions nationwide by consumers and businesses are still well below Great Recession levels, analysts say there is an unmistakable trend upward, the New York Post reported. New York state’s bankruptcy filings, for instance, have risen steadily the past three years, hitting 34,711 in 2018, up from 30,112 in 2016, according to the American Bankruptcy Institute (ABI), based on data from Epiq Systems. More consumers nationwide are falling behind on their payments and filing for bankruptcy to resolve overwhelming debt loads. And low unemployment, an uptick in average wages and the latest Fed interest rate cut have not restrained the debt monster. Some cash-strapped consumers are even finding relief at food pantries. “In high-cost cities like New York, personal incomes are not often enough to pay the household bills,” Zac Hall, vice president of anti-poverty programs at the Food Bank of New York, told The Post. “We are seeing people using consumer debt as a way to make ends meet when they come here,” he added, citing the pressures his nonprofit faces to keep up the distribution of food and meals at no cost to some 1.5 million New Yorkers. And unmanageable debt is also forcing more companies to file for bankruptcy, triggering a wave of job cuts — with nearly 43,000 job losses announced in the first seven months of this year, according to a new report by Challenger, Gray & Christmas. It’s almost 20 percent more than all bankruptcy-linked job cuts in 2018. In the latest example, last week Barneys New York said it had filed for chapter 11 protection. Read more. 

Click here to read ABI’s statistical release and click here to access the monthly statistical charts. 

Outstanding student loan debt is on the rise in the U.S. — in June, it nearly hit $1.6 trillion, a record amount — and more Americans are delaying saving for retirement as a result, FoxBusiness.com reported. A staggering 84 percent of American adults reported that student loans are limiting the amount they’re able to save for retirement, according to new research conducted by the MIT AgeLab and published by the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA). About three out of four borrowers said they’re putting off maximizing their retirement savings, instead focusing on paying off their student loan debt. More than one quarter — 26 percent — said that they aren’t saving for retirement at all because of student loan debt (the highest non-mortgage debt category in the U.S.). Borrowers, spanning all ages, said they were prioritizing paying off student loans, and will contribute to retirement savings once that’s completed. About 39 percent of those between the ages of 25 and 35 who aren’t saving for retirement cited student loans as the reason. And for the parents and grandparents taking out loans for children and grandchildren, 43 percent said they’ll focus on retirement once the debt is paid. Read more. 

In related news, a new report by JPMorgan found that paying off student loans is not just a personal problem, it is often a family issue, FoxBusiness reported. Nearly 19 percent of individuals report receiving help to pay off student loans, showing that it often affects “families’ larger financial lives” as opposed to just the individual borrower’s. The report shows that student loan debt is the fastest growing category of household debt in the country. According to the research, it has more than doubled over the last decade to $1.5 trillion in 2018, trailing behind only mortgage debt. The findings, which used data from more than 4.6 million families who made at least one student loan between October 2012 and July 2018, also note that nearly 45 million borrowers are affected by the "student loan crisis.” Read more. 

The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy. 

Investing in a college degree still pays off for most students with higher salaries and greater wealth, but in recent years it has become riskier, splitting graduates more widely into haves and have-nots, the Wall Street Journal reported. “It just has not been the blanket guarantee of following the same path to prosperity that the earlier generations followed,” says economist William Emmons of the St. Louis Federal Reserve. There are three related shifts causing economists to re-examine the returns of college. First, the wages of college graduates have remained mostly flat this century, after inflation. Second, the cost of attending college has soared. Third, even with higher salaries, significant numbers of college graduates in recent years are failing to build the kind of wealth that previous generations did. The question of higher education’s value has gained urgency because so many more Americans are going to college than before, and because they are paying far more to do so. The share of Americans between ages 25 and 29 with a bachelor’s degree rose to 37 percent last year from 29 percent in 2000, Education Department data show. College and graduate-school tuition has risen at triple the rate of inflation this century, according to Labor Department data. Students who borrowed now leave college with more than $30,000 in debt, on average, and a small but growing number is carrying $50,000 and beyond, according to a report last year by the Brookings Institution. College graduates still earn far more than those who never got an education beyond high school. Americans with a bachelor’s degree — but not a graduate degree — earned an average $77,239, nearly $32,000 more than the average earnings of workers with only a high-school diploma, according to the New York Federal Reserve. Read more. (Subscription required.) 

The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Listen to this podcast to find out more and click here to download your copy of the Final Report. 

Consumer borrowing slowed in June to the smallest increase in three months as a jump in auto loans and student loans was offset by a big drop in borrowing on credit cards, the Associated Press reported. Overall consumer borrowing increased by $14.6 billion in June after a $17.8 billion advance in May, the Federal Reserve reported yesterday. It was the smallest increase since a $9.9 billion gain in March. Auto and student loans rose by $14.7 billion, the biggest gain since December. Borrowing in the category that covers credit cards fell by $80.5 million following a gain of $7.5 billion in May. It was the third monthly decline in the credit card category in the past seven months. The overall June increase pushed consumer credit to a new record of $4.1 trillion. The Fed's monthly credit report does not cover mortgages or any other debt secured by real estate such as home equity loans.

People are twice as likely to file for bankruptcy if their health insurance has been interrupted, according to a new study published this week, MarketWatch.com reported. In fact, all it takes is a coverage gap within two years for the chance of bankruptcy to jump twofold, according to the study published by the American Bankruptcy Institute. “Continuing health insurance matters,” said Prof. Michael Sousa, one of the authors and an associate professor at the University of Denver Sturm College of Law. Prof. Brooke Gotberg, the other author on the latest study, and an associate professor at the University of Missouri Law School, said that the study underscored the importance of health insurance. “There’s general consensus if somebody has a horrible, unforeseen unmitigated medical emergency, that’s shouldn’t destroy their lives.” The researchers analyzed Bureau of Labor Statistics data of more than 12,500 people. They found a “strong association” between coverage interruptions and consumer bankruptcies. That link held true even when controlling for variables like earnings and debt-to-income ratio. From 2008 to 2014, 454 people in that sample declared bankruptcy. Divorce, health problems and lower incomes were usually factors at play when someone experienced interrupted health coverage, the study said. Many insurance plans are connected to an individual’s employment or that of his/her spouse. Plus, a health limitation can create employment instability, it added. Read more. 

To read the full study published in the Summer 2019 edition of the ABI Law Review, please click here. 

With farm bankruptcies rising and agricultural debt loads soaring, the U.S. Senate on Thursday passed a bill that will make it easier for more farmers with larger amounts of debt to file for bankruptcy protection, Reuters reported. The bipartisan bill — H.R. 2336, the "Family Farmer Relief Act of 2019" — raises the ceiling on how much debt producers who file for chapter 12 bankruptcy can have, to $10 million from the previous $4 million. It costs far more now to run a U.S. farm than it did 30 years ago, according to U.S. Department of Agriculture data. Without this change to the law, bankruptcy experts say, farmers whose debts exceed $4.15 million are forced to use chapter 11 protection, which is more costly and onerous. ABI testified in support of the bill. A Reuters analysis of Federal Deposit Insurance Corporation data found that — after years of building up their farm lending portfolios in the wake of the U.S. housing meltdown of the late 2000s — top Wall Street banks are now pulling back from the sector as farm incomes are falling and farm loan delinquency rates are rising. Read more. 

In addition to the Family Farmer Relief Act, the Senate on Thursday also passed H.R. 3311, the Small Business Reorganization Act; H.R. 2938, the Honoring American Veterans in Extreme Need Act (HAVEN Act); and H.R. 3304, the National Guard and Reservist Debt Relief Extension Act. ABI testified in support of H.R. 2938, H.R. 3311 and H.R. 2336. All the bills passed the U.S. House of Representatives and are non-controversial. The bills received unanimous consent to proceed to passage. The legislation will now be sent to President Trump to be signed into law. Click here to read ABI’s press release. 

The American middle class is falling deeper into debt to maintain a middle-class lifestyle, according to a Wall Street Journal analysis. Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick. Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy. Consumer debt, not counting mortgages, has climbed to $4 trillion — higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding. Student debt totaled about $1.5 trillion last year, exceeding all other forms of consumer debt except mortgages. Auto debt is up nearly 40 percent adjusting for inflation in the last decade to $1.3 trillion. And the average loan for new cars is up an inflation-adjusted 11 percent in a decade, to $32,187, according to an analysis of data from credit-reporting firm Experian. Unsecured personal loans are back in vogue, the result of competition between technology-savvy lenders and big banks for borrowers and loan volume. The debt surge is partly by design, a byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving. It has reshaped both borrowers and lenders. Consumers increasingly need it, companies increasingly can’t sell their goods without it, and the economy, which counts on consumer spending for more than two-thirds of GDP, would struggle without a plentiful supply of credit.