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Each year, only a fraction of the Americans who could benefit financially from bankruptcy actually seek relief, according to an Associated Press commentary. About 14 percent of U.S. households — or roughly 17 million — owe more than they own, according to Federal Reserve Bank of New York estimates. Many of these households could benefit from having their debts wiped out, but fewer than 1 percent of U.S. households actually file for bankruptcy each year. Last year, there were 752,160 personal bankruptcy filings. Researchers refer to this gap as “missing bankruptcies” — the filings that could be happening, but aren’t. Now, there’s an additional set of missing bankruptcies: the cases people normally would have filed in recent months, but haven’t. Bankruptcy filings dropped dramatically in the second quarter of this year, to about 60 percent of the average for the previous five years. Courthouses were shuttered by pandemic closures, which made it harder for creditors to pursue foreclosures and wage garnishments. Those are two big drivers of consumer bankruptcy filings, says David Cox, a bankruptcy attorney in Lynchburg, Va., and co-author of ABI's Consumer Bankruptcy: Fundamentals of Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code. Borrowers have benefited from various forms of coronavirus relief, such as suspended payments on federal student loans, mortgage forbearance and expanded hardship options for loans and credit card accounts. The $600 weekly bump in unemployment checks, which expired in July, also kept many people afloat, Cox says. Lower jobless benefits, along with the reopening of courts and continued high unemployment, mean the lull in bankruptcy filings is likely temporary, says Jenny Doling, a bankruptcy attorney in Palm Desert, Calif., who served on the ABI Consumer Bankruptcy Commission’s Chapter 13 Advisory Committee. She worries that people will wait too long to file. Too often, people drain retirement funds or other assets that would be protected in bankruptcy to pay debts that will ultimately be erased, she says. Putting off bankruptcy also can make it harder to come up with the $1,500 needed to file a typical case.

The Government Accountability Office (GAO) yesterday urged the Treasury Department and IRS to update and refine their estimate of the number of people who have not yet received their coronavirus relief payments, saying that doing so "could provide greater clarity about which populations may be at risk of missing out on the payment," The Hill reported. "Without an updated estimate, Treasury, IRS, other federal agencies, and IRS’s outreach partners are limited in their ability to appropriately scale and target outreach and communication efforts to individuals who may be eligible for a payment," the GAO said in a report. Legislation enacted in March directed the Treasury and IRS to provide most Americans with a one-time payment of up to $1,200 per adult and $500 per child. The agencies have said that the vast majority of the payments have been issued, but there are still some who have not received the payment to which they are entitled. Treasury estimated in April that 30 million individuals who typically are not required to file a tax return are eligible for a payment, including 14 million who don't receive certain federal benefits. The IRS has indicated that 5.3 million people have used the IRS's web tool for non-filers to claim their payments through July 31. As a result, there could be at least 8.7 million people who are eligible for a payment but haven't gotten one, the GAO said.

Hospitals across the country are charging private insurance companies 2.5 times what they get from Medicare for the same care, according to a new RAND Corporation study of hospital prices released today, the New York Times reported. In a half-dozen of 49 states in the survey, including West Virginia and Florida, private insurers paid three or more times what Medicare did for overnight inpatient stays and outpatient care. While the pandemic caused losses for many hospitals, many of these big systems are sitting on large profit reserves, while also receiving some of the $175 billion in aid Congress allocated to make up for their costs and lost revenue. Employers provide health insurance coverage for more than 153 million Americans. The companies and insurers in the study paid nearly $20 billion more than Medicare would have for the same care from 2016 through 2018, according to the RAND researchers.

U.S. consumer spending slowed in August, with a key retail sales gauge unexpectedly declining, as extended unemployment benefits were cut for millions of Americans, offering more evidence that the economic recovery from the COVID-19 recession was faltering, Reuters reported. The report from the Commerce Department on Wednesday ramped up pressure on the White House and Congress to restart stalled negotiations for another fiscal package. At least 29.6 million people are on unemployment benefits. Consumer spending accounts for more than two-thirds of the U.S. economy. The Federal Reserve yesterday kept interest rates near zero, noting that the pandemic “will continue to weigh on economic activity” in the near term, “and poses considerable risks to the economic outlook over the medium term.” Fed Chair Jerome Powell told reporters more fiscal support is likely to be needed. “Consumers are being increasingly cautious with their spending,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York. “If Congress is unable to extend fiscal aid to households in the coming weeks, the economy will be particularly susceptible to a cutback in consumer spending, especially from the lowest-income families.” Retail sales excluding automobiles, gasoline, building materials and food services dipped 0.1% last month after a downwardly revised 0.9 percent increase in July. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have advanced 1.4 percent in July.

Tens of thousands of former students at ITT Technical Institute, a for-profit chain that collapsed four years ago, will not have to repay $330 million in private student loans that prosecutors called “reckless” and deceptive, under a settlement deal announced yesterday, the New York Times reported. The agreement, involving a federal regulator and attorneys general from 47 states, covers debts incurred through ITT’s Peaks loan program, which was often used by students who had maxed out their federal student loans. The program’s loans carried high interest rates and trapped borrowers in debts that ITT knew they would be unable to repay, according to a complaint filed by the Consumer Financial Protection Bureau. In some cases, financial aid officers sometimes signed loan documents without the borrower’s knowledge or permission. “Many students were pushed into Peaks Loans, did not understand the terms of their Peaks Loans, or did not realize they had taken out loans at all,” the bureau wrote in its filing in the U.S. District Court for the Southern District of Indiana. The settlement agreement, which requires a federal judge’s approval to be enacted, covers about 35,000 borrowers, many of whom have been left with high debts and ruined credit. The deal requires the loans’ owners to cancel all outstanding loan balances and cease collection efforts. Trusts set up by Deutsche Bank made the loans, but ITT effectively controlled them. The loans were sold off to investors, but the high default rate — about 80 percent — and ITT’s bankruptcy mean those investments haven’t been performing. ITT abruptly closed and filed for bankruptcy in 2016 after a government crackdown on schools that deceived students about the quality of their educational programs and their graduates’ career prospects. Hundreds of thousands of ITT’s former students are still saddled with loan debts for degrees that many said they found virtually worthless. The settlement announced yesterday mirrors one the consumer bureau reached last year with the operators of another ITT loan program, Student CU Connect CUSO, to eliminate $168 million in private student debts. But so far, the federal government — the nation’s largest student lender — has so far refused to cancel much of the debts ITT students owe to it, despite findings by Education Department officials that ITT engaged in “flagrant” and “pervasive” fraud. Tens of thousands of federal loan borrowers who have sought relief through a government program have been denied; even those whose claims were approved were in some cases told that none of their debt would be eliminated.

Consumers likely boosted U.S. retail spending in August for the fourth month in a row, but at a slower pace than earlier in the summer as the country continued to struggle with the coronavirus pandemic, the Wall Street Journal reported. Economists surveyed by the Journal forecast that retail sales increased a seasonally adjusted 1.1 percent in August from a month earlier. That would mark a slight cooling from the 1.2 percent increase recorded in July. Retail spending has continued to recover from the economic shock created by the pandemic, surpassing prepandemic levels in July. “It’s going to be tough to make further gains because levels are already pretty robust,” Stephen Stanley, chief economist at Amherst Pierpont Securities said, referring to retail sales. Other parts of the economy are also digging back, though at different speeds. Industrial production increased in August for the fourth straight month, but remains well below levels seen before the pandemic. Employers have continued to add jobs across industries, but there are still 11.5 million fewer jobs than in February and the unemployment rate of 8.4 percent is well above the 3.5 percent level from before the pandemic.

U.S. consumer prices increased solidly in August, but labor market slack is likely to keep a lid on inflation as the economy recovers from the COVID-19 recession, Reuters reported. The Labor Department said on Friday that its consumer price index rose 0.4 percent last month. The CPI advanced 0.6 percent in June and July after declining in the prior three months as business closures to slow the spread of the coronavirus depressed demand. In the 12 months through August, the CPI increased 1.3 percent after gaining 1.0 percent in July. Economists polled by Reuters had forecast the CPI rising 0.3 percent in August and climbing 1.2 percent year-on-year. 

Senate Republicans are proposing to beef up a “skinny” coronavirus relief package by more than 100 pages, including an enhanced deduction for charitable giving, $20 billion for farmers and ranchers and money for child care and stockpiling medical supplies, Roll Call reported. A vote on the package, which isn’t expected to advance over Democratic opposition, could come on Thursday, according to Senate Majority Leader Mitch McConnell. The Kentucky Republican said yesterday before introducing the revised bill that it would be “targeted” to the “very most urgent” needs facing Americans dealing with the continued pandemic fallout. "Senators will not be voting on whether this targeted package satisfies every one of their legislative hopes and dreams," McConnell said in floor remarks later on Tuesday. "We vote on whether to make laws, whether to forge a compromise, whether to do a lot of good for the country and keep arguing over the remaining differences later." McConnell also yesterday filed a motion to end debate on the underlying legislative vehicle, a measure which has already become law separately. Using a "shell" that has already passed both chambers enables the Senate to skip a procedural step and vote on cloture Thursday. An official price tag wasn’t available, but the new measure appears to contain more than $500 billion in assistance, which while larger than an earlier draft circulated last month would still be substantially shy of the $1 trillion July rollout that landed with a thud among Senate Republicans. Read more. 

In related news, a fresh U.S. Senate Republican coronavirus spending package introduced yesterday does not include new government assistance for U.S. airlines or airports, a text of the proposal showed, as the sector races to save jobs before October, Reuters reported. More than 35,000 workers at two of the largest U.S. carriers alone — American Airlines and United Airlines — are set to lose their jobs once an initial $25 billion in payroll support from the government expires this month. That has fueled a furious push by unions for a six-month extension of the aid, with flight attendants and other aviation workers planning to march outside the U.S. Capitol today. Last month a group of Senate Republicans backed extending $25 billion in payroll assistance for airlines, an idea Democrats also support. That proposal was excluded from the latest Senate measure, which was reviewed by Reuters and is expected to be voted on Thursday, but it is an opening salvo for talks that are expected to intensify once the U.S. House returns from recess next week. The Senate proposal also excludes $10 billion in assistance for airports that was part of an earlier Senate bill. Read more. 

U.S. consumer borrowing rose in July for a second month, reflecting an increase in non-revolving credit such as auto loans as the economy reopened more broadly and spending picked up, Bloomberg News reported. Total credit advanced $12.2 billion from the prior month after an upwardly revised $11.4 billion June gain, Federal Reserve figures showed yesterday. The median estimate in a Bloomberg survey of economists called for a $13 billion increase. The bounce back in consumer borrowing is in line with recent increases in retail sales, particularly purchases of motor vehicles. Still, consumer sentiment remains weak, and the expiration of the additional $600 of unemployment benefits could impact spending and borrowing in the coming months. Revolving, or credit-card debt, declined $293 million, marking the fifth straight decline. Non-revolving debt, which also includes school loans, rose $12.5 billion. Lending by the federal government, which is mainly for student loans, rose just $1.8 billion before seasonal adjustment. Total consumer credit for the month expanded an annualized 3.6 percent after growing 3.3 percent in June. The Fed’s report doesn’t track debt secured by real estate, such as home mortgages.