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Troubled companies across industries have been filing for bankruptcy at a faster pace this year than last, a boomlet that follows a period of record inflation and one of the quickest rate-hike cycles in U.S. history, WSJ Pro Bankruptcy reported. Many of the year’s corporate bankruptcy filers have attributed their plight to persistent price pressures driving up the cost of goods, coupled with continued interest-rate hikes that make it more difficult to refinance debt. Fears of economic instability deepened after the collapse of two regional banks and turbulence at First Republic Bank and Credit Suisse Group AG. This year, a total 753 commercial chapter 11 cases had been filed by the end of February, a 76% increase from 429 filings in the same two-month period last year, according to data and services provider Epiq Bankruptcy. The uptick came before the recent bank failures. Silicon Valley Bank and Signature Bank were taken over by regulators over the weekend. SVB Financial Group, parent company of SVB, filed for chapter 11 on Friday to ease a sale of its remaining assets after the core of its business was seized by federal regulators. Major U.S. banks provided First Republic with a $30 billion lifeline to try to quell panic over the bank failures. Before those failures, Federal Reserve Chair Jerome Powell told lawmakers the Fed was prepared to increase the pace of rate hikes to win its war on inflation. But investors this week are betting the Fed will change course and pause further rate increases. But even if rate hikes are paused or slowed, their rapid rise in the past year has made it harder to refinance at cheap levels. And borrowers saddled with a lot of debt are in worse shape. “Zero percent interest hides a multitude of sins,” said John Penn, chair of Perkins Coie LLP’s bankruptcy and restructuring practice. “Once the interest rates start ticking upwards, and liquidity starts drying up, there are some folks that don’t know how to operate in that environment.” While forecasts of future waves of chapter 11 filings have at times proven incorrect, a confluence of macroeconomic factors are contributing to corporate distress, including the rising cost of capital, said Amy Quackenboss, executive director at the American Bankruptcy Institute. “Businesses which in the last 10 years have taken advantage of low interest rates are having trouble refinancing their debt load,” Ms. Quackenboss said. And some wobbly companies are still facing supply-chain problems that drive up the cost of goods, she said. Now, however, they are forced to cope with those problems without the government assistance available during the pandemic, she added.
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SVB Financial Group, the one-time parent company of the failed Silicon Valley Bank, is filing for bankruptcy protection. The company’s chapter 11 petition on Friday is another development in a banking crisis that’s shaken stock markets and applied pointed questions to banks’ financial health. After bankruptcy cases dropped off during the pandemic, they have been making a comeback this year for both businesses and consumers, according to a MarketWatch.com analysis. “You are seeing companies that are so sick, it’s unavoidable,” said Al Togut, partner at Togut, Segal & Segal, a boutique law firm specializing in corporate bankruptcy. Companies that would otherwise be seeking bankruptcy protection are benefiting from liquidity in the financial system, Togut added. “That’s not to say they don’t need restructuring, because they do. And judgment day will come,” Togut added. Pamela Foohey, a professor at the Cardozo School of Law where her specialties include consumer bankruptcy, echoed Togut’s sentiments, saying “judgment day” is also coming for consumers. But that might take time. Consumers often regard bankruptcy as a last resort, and struggle to repay debts for two or three years before turning to bankruptcy court, she said.
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The nation's most powerful financial watchdog agency directed student loan servicers that unlawfully collected debt discharged in bankruptcy to return those funds to affected borrowers, YahooFinance.com reported. It also warned all servicers against the illegal practice and to cease those efforts immediately. The bulletin issued yesterday by the Consumer Financial Protection Bureau (CFPB) comes after the agency’s examiners found some private student loan servicers did not determine whether loans were discharged and continued to bill and collect payments, running afoul of the Consumer Financial Protection Act’s “prohibition on unfair, deceptive, or abusive acts or practices.” Many borrowers continued to pay thousands of dollars on those loans, it said. “When a court orders the discharge of a loan, lenders and servicers should not treat this as a suggestion,” CFPB Director Rohit Chopra said in a press release. “The CFPB has found that some servicers are ignoring bankruptcy court orders. The student loan servicing industry should ensure that their collection practices are compliant with the law.”

A U.S. consumer watchdog's proposal to slash late fees on credit cards is facing a rough road ahead as lenders gear up for what could turn out to be a fierce battle with the agency, industry experts and analysts said, Reuters reported. Last month, the Consumer Financial Protection Bureau said it was looking to curb such "excessive" fees, which cost American consumers about $12 billion each year, according to the agency's estimates. Credit card issuers that have a bigger exposure to subprime customers or private label cards, which can only be used with a specific brand, could be the worst hit, with revenues expected to decline by mid-to-high single-digit percentage points, ratings agency Fitch estimates. Fitch identified Discover Financial Services, Capital One Financial, Synchrony Financial and Bread Financial Holdings among those at risk. The American Bankers Association (ABA), which represents Wall Street banks as well as regional lenders, has already warned that the CFPB's proposal "flagrantly violates federal law", according to a statement shared with Reuters.

The Department of Education announced plans to hold owners of private colleges personally liable for student loan debts left unpaid to the federal government, two days after advocating for student loan debt forgiveness before the U.S. Supreme Court, YahooFinance.com reported. In guidance published Thursday, the Education Department said that, in some cases, it will block certain schools from participating in federal financial aid programs unless those who own the schools put their personal finances on the line. Going forward, the administration said, the Education Department will decide on a case-by-case basis whether to require college leaders to assume personal liability. Those decisions will be made either when an institution’s program participation agreement is up for renewal or when it undergoes a change in ownership. The department said that it will require leaders that “fail to operate in a financially responsible way” to assume personal liability for unpaid federal student loan debts.

Neither of the two cases argued before the U.S. Supreme Court on Tuesday is guaranteed to settle whether the Biden administration is legally empowered to wipe out hundreds of billions of dollars in federal student loan debt, according to a YahooFinance.com commentary. The court could sidestep the question altogether if the justices decide that the parties challenging the debt relief plan lack standing, or the right to have their grievances heard. However, if the court does tackle the scope of the executive branch’s power, its decision could hinge on whether Biden’s debt relief plan, purported to alleviate financial hardships for more than 40 million American student loan borrowers, is actually tied to COVID-19. That’s because the HEROES Act — a law the administration taps as authority for forgiving student loans — empowers the U.S. Education Secretary to waive or modify laws or regulations concerning federal student loan programs for student loan recipients who “suffer direct economic hardship as a direct result of a war or other military operation or national emergency.” The law further specifies that the Secretary’s authority is meant to ensure that student loan borrowers experiencing an emergency-caused economic hardship “are not placed in a worse position financially” in relation to those loans. According to the administration, the COVID-19 pandemic is just the sort of national emergency contemplated by the HEROES Act because it directly caused economic hardship for certain student loan borrowers. U.S. Solicitor General Elizabeth Pregolar, who argued on behalf of the administration in both cases — Biden v. Nebraska and Department of Education v. Brown — said during Tuesday’s hearings that student loan borrowers in forbearance for long periods, including those who took advantage of COVID-19–related repayment pauses set to expire within months, are more likely to default on payments, particularly those with annual income of less than $125,000. Chief Justice John Roberts, Justice Elena Kagan, and Justice Amy Coney Barrett questioned whether the pandemic is directly responsible for degrading the indebtedness of all student loan borrowers entitled to forgiveness under the relief plan.