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Commentary: The Small Business Reorganization Act Arrives in February 2020; Here's What You Need to Know



With President Trump’s signature on Aug. 23, the "Small Business Reorganization Act of 2019" (SBRA) will officially take effect in February 2020. The SBRA is designed to fill a gap in the current bankruptcy laws by providing a framework for small businesses to successfully reorganize in bankruptcy court, according to a recent commentary in the National Law Review. Under the SBRA, the Bankruptcy Code will be amended to ease the procedural burden on small businesses seeking reorganization. The SBRA amends the Bankruptcy Code with the addition of a new subchapter V to chapter 11, defining a small business debtor as an entity with an aggregate of noncontingent liquidated secured and unsecured debt of not more than $2,725,625. The SBRA mandates that a standing trustee be appointed in every small business chapter 11, similar to the existing statutes for chapter 12 and chapter 13. Among other provisions, the new subchapter will now allow a small business to confirm a plan over the objections of creditors, which is a significant change and should greatly increase the overall success rate for small businesses.







Also, don't miss the ABI Talk at the Winter Leadership Conference on Dec. 6, "New Reorganization Hope for Main Street Debtors," to be delivered by Bankruptcy Judge Michelle Harner (D. Md.; Baltimore). Register here.

Student Borrowers ‘Preyed Upon’ by Loan Servicers, but Lawmakers Want to Change That



A House Financial Services Committee hearing on Tuesday tackled the issue of student lending and its ramifications for 45 million American student loan borrowers, CNBC.com reported. Both Democrats and Republicans on the committee agreed there are problems with the current student lending system. Specifically, lawmakers and consumer advocates criticized student loan servicing companies such as Navient, saying that student borrowers need more assistance and protections from these for-profit corporations. Democrats unveiled eight draft bills on Tuesday for discussion that would, among other things, establish a student borrowers’ bill of rights, strengthen credit-reporting standards, block debt collectors from unfairly going after student borrowers, protect private student loan borrowers and help borrowers with student debt purchase their first home. Seth Frotman, executive director of the Student Borrower Protection Center, says that student loan borrowers have a “bullseye” on their back and are subjected to “predatory tactics” from servicing companies from the day they take out their loan until the day they pay it back. He claims that’s because student borrowers have less rights than nearly any other type of borrower. “You have more protections if you’re paying back your credit card or your mortgage,” Frotman said.







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.

More Americans Going Without Health Coverage Despite Strong Economy, Census Bureau Finds



The proportion of Americans without health insurance grew significantly last year for the first time this decade, even as the economy’s strength pushed down the poverty level to its lowest point since 2001, according to federal data released on Tuesday, the Washington Post reported. The finding that 27.5 million U.S. residents lacked coverage in 2018, based on a large U.S. Census Bureau survey, reverses the trend that began when the Affordable Care Act expanded opportunities for poor and some middle-income people to get insurance. Taken together, the census numbers paint a portrait of an economy pulled in different directions, with the falling poverty rate coinciding with high inequality and the growing cadre of people at financial risk because they do not have health coverage. As more Americans found jobs, the poverty rate fell last year to its lowest level since 2001, and middle-class income inched marginally higher. Median U.S. income — the point at which half of U.S. families earn more and half earn less — topped $63,000 for the first time, although it was roughly the same level as it was 20 years ago, after adjusting for inflation.







An article in the Summer 2019 edition of the ABI Law Review found that individuals who experienced a gap in medical care coverage over a two-year period were roughly twice as likely to file for bankruptcy as those who retained continuous coverage. Click here to read the article. A forthcoming podcast will feature the authors, Profs. Brook E. Gotberg of the University of Missouri School of Law (Columbia, Mo.) and Prof. Michael D. Sousa of the University of Denver Sturm College of Law (Denver, Colo.), discussing their research.

U.S. Consumer Prices Rose 0.1 Percent in August



U.S. consumer prices rose slowly in August, held down by weak energy prices that masked a broader firming in price pressures, the Wall Street Journal reported. The consumer-price index, which measures what Americans pay for items from fresh whole milk to lawn-care services, rose a seasonally adjusted 0.1 percent in August from a month earlier, matching economists’ expectations. The sluggish pace of overall price growth largely reflected a decline in energy prices. Core consumer prices, which exclude the volatile categories of food and energy, increased 0.3 percent from the previous month. This marked the third straight monthly increase of 0.3 percent and an uptick from earlier in 2019. Prices for a wide array of goods and services rose last month. Rent and medical prices were among the drivers behind stronger inflation in August.

Need Cash? Companies Are Considering Magazine Subscriptions and Phone Bills When Making Loans



For decades, banks and other financiers have relied primarily on consumers’ borrowing history to make lending decisions. Now revenue-hungry companies are considering metrics both mundane and peculiar, like whether applicants shop at discount stores, subscribe to magazines or pay their phone bills on time, the Wall Street Journal reported. Those experimenting with new metrics range from big-name banks like Goldman Sachs Group Inc., Ally Financial Inc. and Discover Financial Services to upstart financial-technology firms. The changes are an about-face for many banks, which have spent much of the decade since the financial crisis chasing mostly ultra-creditworthy customers. But that pool is only so big. The field of potential new borrowers is huge: About 53 million U.S. adults don’t have credit scores, according to Fair Isaac Corp., creator of the widely used FICO scores. Another roughly 56 million have subprime scores. Some have a checkered borrowing history or high debt loads. But others, banks point out, just don’t have traditional borrowing backgrounds, often because they are new to the U.S. or pay for most expenses with cash. Government officials at times have encouraged or even required changes to the information in credit reports and scores, reasoning they would bring loans to deserving borrowers who might not fit a traditional mold.

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Miss Yesterday’s Webinar Examining New Bankruptcy Laws to Help Distressed Small Businesses, Disabled Veterans and Family Farmers? Replay Available!



Experts participated on an ABI Media Webinar yesterday that provided an overview of the recently enacted “Small Business Reorganization Act of 2019” (H.R. 3311), “HAVEN Act” (H.R. 2938) and “Family Farmer Relief Act of 2019” (H.R. 2336). President Donald J. Trump on Aug. 23 signed the bipartisan bills into law. The webinar features:

• Robert J. Keach of Bernstein, Shur, Sawyer & Nelson (Portland, Maine) discussing SBRA. Keach testified on ABI’s behalf in support of H.R. 3311, H.R. 2938 and H.R. 2336 before the House Judiciary Committee Subcommittee on Antitrust, Commercial and Administrative Law on June 25.

• Kristina Stanger of Nyemaster Goode, P.C. (Des Moines, Iowa) and Jessica Hopton Youngberg of the Veterans Legal Services Clinic at the New England Center & Home for Veterans in Boston, both members of ABI's Veterans' Affairs Task Force, discussing the HAVEN Act.

• Joseph A. Peiffer of Ag & Business Legal Strategies (Cedar Rapids, Iowa) and Donald L. Swanson of Koley Jessen (Omaha, Neb.), both with more than 30 years of experience in bankruptcy and agricultural law, discussing the Family Farmer Relief Act.

ABI Executive Director Samuel J. Gerdano moderated the webinar. To watch the replay, please click here.

 

Commentary: Private Equity's Abuse of Limited Liability*



One of the central features of the Stop Wall Street Looting Act that was introduced by Sen. Elizabeth Warren and a number of co-sponsors is a targeted rollback of limited liability, according to a CreditSlips blog post by Prof. Adam Levitin of Georgetown University Law. This provision, more than any other, has gotten some commentators’ hackles up, even those who are willing to admit that there are real problems in the private-equity industry and who welcome some of the other reforms in the bill. The idea that limited liability is a sine qua non of the modern economy is practically Gospel to most business commentators. These commentators assume that without limited liability, no one will ever assume risks, such that any curtailment of limited liability is a death sentence for the private-equity industry, but they're wrong, according to Levitin. Limited liability is a substantial, regressive cross-subsidy to capital at the expense of tort creditors, tax authorities and small businesses. Limited liability is a relic of the underdeveloped financial markets of the Gilded Age and operates as an implicit form of leverage provided by law, according to Levitin. But it’s hardly either economically efficient or necessary for modern business activity.







*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.

Latest ABI Podcast Features Experts Discussing Consumer Commission's Recommendations on Discharge Violations, Attorney Competency and Lawyer Misconduct



ABI's latest podcast features members of ABI's Commission on Consumer Bankruptcy discussing recommendations from the Final Report looking at remedies for discharge violations, attorney competency and remedying lawyer misconduct. Commissioner Rudy Cerone of McGlinchey Stafford, PLLC, (New Orleans) moderates the discussion with fellow Commissioners Tara Twomey of the National Consumer Law Center (San Jose, Calif.) and Richardo Kilpatrick of Kilpatrick & Associates, P.C. (Auburn Hills, Mich.), and Karen Cordry of the National Association of Attorneys General (Washington, D.C.), who was a member of the Chapter 7 Advisory Committee.

White Paper: Retailers Face Tough Decisions as China Tariff Pressures Mount



To date, many consumer goods such as toys, shoes and electronics have been strategically exempted from the tariffs, which has to a great extent spared U.S. shoppers from feeling the pain at the point of sale. But based on the Trump administration’s position, if the most recent round of talks on the issue between President Trump and Chinese leader Xi Jinping do not end well, the pain could become very real for both U.S. consumers and the businesses they frequent sooner rather than later, according to a research paper by Hilco Global. New tariffs could impact 100 percent of the toys and sports equipment imported from China to the United States, as well as 93 percent of the footwear and 91 percent of textiles and clothing, according to an analysis by the Peterson Institute for International Economics. Moving ahead, many retailers may experience shortages of supply as they seek non-Chinese vendors and ramp up those new and intricate relationships. Additionally, because most are not in a position to raise pricing enough to nullify the impact of the increased tariffs on their businesses, it can also be expected that we will see continued compression of retail gross margins.

Banks Fire Up Their Mortgage Machines for a Refinancing Boom



With rates for home loans sinking to their lowest levels since late 2016, Wells Fargo & Co., the biggest mortgage lender in the U.S., has boosted staffing for the business by about 10 percent this year and plans to keep hiring. Bank of America Corp. is hiring in areas including sales, processing and underwriting. The mortgage industry has added almost 5,000 employees since March, a 1.5 percent gain, according to the Bureau of Labor Statistics. The volume of applications for refinancing mortgages has more than tripled since December, according to a barometer from the Mortgage Bankers Association.

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Bankruptcy Bills Await President's Signature



A trio of bankruptcy bills are sitting on President Trump’s desk awaiting his signature. The three bankruptcy bills are the “Small Business Reorganization Act of 2019” (H.R. 3311), the “Honoring American Veterans in Extreme Need Act of 2019” or the “HAVEN Act” (H.R. 2938), and the “Family Farmer Relief Act of 2019” (H.R. 2336).

JPMorgan: Tariffs Could Cost U.S. Families Up to $1,000 a Year



More than a year into the U.S./China trade war, American consumers are about to find themselves squarely in the crosshairs for the first time, with households estimated to face up to $1,000 in additional costs each year from tariffs, according to research from JPMorgan Chase, the Washington Post reported. Consumers, whose spending fuels about 70 percent of the U.S. economy, have been largely shielded from previous rounds of tariffs, which have left businesses reeling and upended global supply chains. But that’s about to change with the 10 percent levies on roughly $300 billion in Chinese imports, about a third of which will take effect Sept. 1. Those tariffs will primarily target consumer goods. Amid growing concern that the tariffs could damage the economy, Trump abruptly announced he would delay tariffs on certain popular products such as laptops, footwear and video games — about two-thirds of the impacted items — until mid-December. But that’s not enough to eliminate the added burden for consumers. JPMorgan researchers calculated that after the 10 percent levies go into effect, American families will be facing about $1,000 in additional costs from all tariffs on Chinese goods annually. If the upcoming tariffs are raised to 25 percent, as Trump has warned, consumers’ costs could go as high as $1,500 a year, researchers estimated. “The impact from reduced spending could be immediate for discretionary goods and services, since tariffs are regressive,” JPMorgan researchers noted. “Unlike the agriculture sector, which is receiving subsidies/aid to offset the impact of China’s retaliatory actions, there is no simple way to compensate consumers.”

Law Firm Bills in Big Bankruptcy Cases Growing Rapidly



There was no summer slowdown for law firms advising on large corporate bankruptcies: The season has brought a bonanza of law firm fee applications and approvals, Law.com reported. Several large firms stand to gain up to tens of millions of dollars from some of the most active chapter 11 bankruptcies this summer, including Sears Holding Corp. and PG&E Corp. In the Sears case, Bankruptcy Judge Robert Drain on June 28 approved fee requests for 16 advisors — including six law firms — that totaled about $130 million in all for work mostly from mid-October through February. Across the country, PG&E has already paid more than $84 million to four firms in the months leading to its January 2019 bankruptcy.

Wells Fargo Pays $6.5 Million to Navajo Nation over 'Predatory' Practices



Wells Fargo & Co. will pay the Navajo Nation $6.5 million to settle a lawsuit over “predatory and unlawful practices” by the bank, the Native American tribe said today, Reuters reported. The Navajo Nation sued Wells Fargo in federal and tribal courts in 2017, alleging that the San Francisco-based bank had opened unauthorized accounts for vulnerable tribe members as part of the potentially millions of fake accounts opened by bank employees nationwide. The settlement “puts other companies on notice that harmful business practices against the Navajo people will not be tolerated,” Navajo Nation President Jonathan Nez said in the statement, which referred to Wells Fargo’s “long campaign of predatory and unlawful practices.” The settlement with the Navajo Nation followed a $575 million deal in 2018 with U.S. states over claims that Wells Fargo opened phony customer accounts and improperly referred and charged customers for financial products.

Hedge Funds Have Already Bled $55.9 Billion This Year



Hedge funds have already bled 50 percent more money this year than in all of 2018, as the industry struggles to win back investors fed up with high fees and poor performance, Bloomberg News reported. Investors yanked $8.4 billion in July, bringing net outflows this year to $55.9 billion, according to an eVestment report on Thursday. That’s up from $37.2 billion for all of last year. Investors’ frustration with hedge funds continues to mount, driving down management and performance fees to well below the “two and 20” fee model once considered standard, according to Eurekahedge. More hedge funds have shut than started in each of the last three years, and those that do launch are far smaller than they were before the financial crisis. The pain for hedge funds isn’t spread evenly, with 37 percent of funds posting net inflows this year. So-called event-driven funds have fared the best, with inflows of $10.3 billion through July, eVestment data show. These funds try to cash in when events such as mergers, takeovers and bankruptcies lead to a temporary mispricing of a company’s shares.

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