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Toys 'R' Us Files for Bankruptcy

Toys 'R' Us, the rainbow-colored toy emporium that for decades was the go-to spot for birthday and holiday gifts, filed for bankruptcy protection late Monday night, undone by a hefty debt load and the rapid shift to online shopping.

As part of the restructuring process, Toys 'R' Us plans to close some underperforming stores, according to people familiar with the matter. Its remaining locations would be reconfigured to be more experienced-based, incorporating amenities such as in-store play areas, they added.

The company expects most of its stores will be open for the holidays and it will use a large bankruptcy loan to continue buying merchandise and funding its operations, the people said. [as reported by 9/18/17 Wall Street Journal]

Click here to read the full article


BlackRock Finds Insurers Hold Riskier Assets than in '08

A decade after the financial crisis, BlackRock Inc. examined the insurance industry's $5 trillion in U.S. investments and found that insurers might fare worse now if markets crashed hard again, Bloomberg News reported yesterday. The world's largest money manager mined the regulatory filings of more than 500 insurance companies and modeled their portfolios in a similar downturn. The stockpiles - underpinning obligations to policyholders across the nation - would drop by 11 percent on average across more than 260 property and casualty insurers in that group, according to its calculations. That's significantly steeper, BlackRock estimates, than their "mark-to-market" losses during the depths of the crisis. [reported in American Bankruptcy Institute 8/31/17 e-newsletter]


Payless Reorganization Plan Wins Court Approval

Payless ShoeSource Inc.'s reorganization plan won court approval on Monday, moving the discount shoe retailer closer to exiting bankruptcy protection, The Wall Street Journal reported yesterday. The plan will allow Payless to eliminate 40 percent of its $838 million in funded debt from its balance sheet by giving lenders equity stakes in the company in exchange for debt forgiveness. Senior lenders, owed $506 million, will share in a 91 percent equity stake in the reorganized company, while junior lenders owed $145 million, are slated to take the remaining 9 percent stake. The nation's largest footwear retailer, Payless sought bankruptcy protection in April.

Unlike its competitors, Payless has closed only a portion of its 4,400 locations. Since the outset of the bankruptcy filing, Payless has planned to exit bankruptcy protection by August. The company will now be under the control of its senior and junior lenders. [Wall Street Journal 7/25/17 article, summarized in American Bankruptcy Institute e-newsletter]


Commentary: The Mall of the Future Will Have No Stores

As retailers close bricks-and-mortar stores at an accelerating pace, shopping-center landlords like Starwood Capital are facing a vexing question: What to do with all this empty space? Their solutions are varied but all have a common element: reducing, or even eliminating, retail from the equation, according to a Wall Street Journal commentary today. Some landlords plug empty spaces with churches, for-profit schools and random enterprises while they figure out a long-term plan. Others see a future in mixed-use real estate, converting malls into streetscapes with restaurants, offices and housing. And some are razing properties altogether and turning them into entertainment or industrial parks. [as reported in American Bankruptcy Institute e-newsletter of 7/3/17]


Auto-Parts Maker Takata Files for Bankruptcy Protection

Takata Corp. and its U.S. subsidiary filed for bankruptcy protection and said it had a preliminary agreement to sell operations to a rival, a long-awaited move designed to keep the auto-parts maker afloat as it replaces millions of its rupture-prone air bags.

At least 16 deaths and more than 180 injuries world-wide have been linked to the defective air bags. The company's bankruptcy protection filings in Japan early Monday and the U.S. late Sunday give the company time to try to stabilize its finances. [as reported in Wall Street Journal on 062716]

Click here to read the full article


Analysis: The Car Was Repossessed and Sold, but Subprime Loan Debt Remains

Unable to recover the balance of the loans by repossessing and reselling the cars, some subprime lenders are aggressively suing borrowers to collect what remains - even 13 years later, the New York Times reported today. Subprime lenders are willing to take a chance on risky borrowers because when they default, the lenders can repossess their cars and - at least in 46 states - get court rulings giving them the power to seize borrowers' paychecks to cover the balance of the car loan. Now, with defaults rising, federal banking regulators and economists are worried about how the strain of these loans will spill over into the broader economy. For low-income Americans, the fallout could, in some ways, be worse than the mortgage crisis. With mortgages, people could turn in the keys to their house and walk away. But with auto debt, there is increasingly no exit. Repossession, rather than being the end, is just the beginning. There are no national tallies of how many borrowers face these types of collection lawsuits, known within the industry as deficiency cases. But state records show that the courts are becoming flooded with them, and debt buyers are bringing their own cases as well, breathing new life into old bills. Portfolio Recovery Associates, one of the nation's largest debt buyers, purchased nearly $30.2 million of auto deficiencies in the first quarter of this year, up from $411,000 just a year earlier. [as reported in ABI enewsletter of 6/22/17]


Calif. Jury Hits TransUnion With Record $60Million Dollar Verdict for TransUnion violating the Fair Credit Reporting Act

A California federal jury found Tuesday that TransUnion violated the Fair Credit Reporting Act when it conflated a class of consumers with similarly-named terrorists and criminals from a government watch list, awarding statutory and punitive damages topping $60 million in what the plaintiffs' attorneys called the largest FCRA verdict to date. [as reported in 6/21/17 Law 360 enewsletter]

Click here to read the full article


California Usury Law

Usury: Yes, there is a California usury law, but most loans are NOT subject to it. California's usury law says a personal loan can't have an annual interest rate of more than 10%. Considering CA's usury law, how do credit card issuers, payday lenders, car title loan lenders, internet lenders, get away with interest rates topping 400% per year interest? Though California's usury law caps the annual interest rate at 10% per year, there are loopholes that keep MOST loans from being subject to the 10% per year interest rate cap. According to the California attorney general's office, the state's usury law doesn't apply to "most lending institutions," including "banks, credit unions, finance companies, pawn brokers, etc." In fact, Article 15 of the California Constitution specifies that the usury law's rate cap isn't applicable to "loans made by ... any bank created and operating under and pursuant to any laws of this state or of the United States of America."


As Retail Outlook Dims, Mall Tenants Push for Shorter Leases

After more than a dozen retail bankruptcies this year contributed to thousands of store closures, visibility for the industry is so poor that retailers are pushing for lease renewals as short as a year or two - down from five to 10 years, according to a Bloomberg News analysis. "You're certainly seeing the renewals geared toward the shorter term, rather than the five-year renewal," said Andrew Graiser, head of A&G Realty Partners.

Retailers are now struggling to figure out how many stores they actually need, he added, and landlords are looking at them "with a much closer eye than they did before." Somewhere between 9,000 and 10,000 stores will close in the U.S. this year, said Garrick Brown, vice president of America's retail research for commercial broker Cushman & Wakefield - more than twice as many as the 4,000 last year. He sees this figure rising to about 13,000 next year. [as reported in American Bankruptcy Institute e-newsletter of 6/15/17]


NACBA Applauds Bipartisan Effort to Discharge Excessive Student Loan Debt

NACBA (National Association of Consumer Bankruptcy Attorneys) reported on the following legislation, introduced in the US House of Representatives, on May 5, 2017:

NACBA Applauds Bipartisan Effort to Discharge Excessive Student Loan Debt

Washington, May 5, 2017-The National Association of Consumer Bankruptcy Attorneys (NACBA), the only organization dedicated to protecting and enhancing the rights of consumer bankruptcy debtors, applauded the lead of Congressman John Delaney (D-MD) on sponsoring H.R. 2366, The Discharge Student Loans in Bankruptcy Act, with bipartisan support from Congressman John Katko (R-NY). H.R. 2366 reforms the federal bankruptcy code to allow excessive student loan debt to be discharged in bankruptcy. With Americans facing a growing $1.3 trillion-dollar student loan debt and more than 11% now in default, this bill would treat student loan debt as equal to other forms of debt, like credit cards.

"We applaud Congressman Delaney's leadership on taking the first step to offer relief from student loan debt to those in greatest need," says NACBA President Jim Haller. "Today's action brings us closer to helping thousands of our members better serve their clients by providing an option to rebuild their financial health. NACBA recognizes the complexity of student loan debt, but also sees the daily struggle of many debtors that sought an education for a better quality of life. Instead of getting a head start, the crushing debt of student loans puts careers, family and even retirement on hold and takes years to overcome."

NACBA Executive Director Dan LaBert added, "Bankruptcy is a remedy of last resort that no one enters into lightly and which is available only to those who can pass rigorous tests which demonstrate that they are unable to pay their debts. NACBA commends Congressman Delaney and Congressman Katko for addressing this important issue head-on with bipartisan cooperation, and NACBA looks forward to working with you and your colleagues in Congress as the bill moves forward."

NACBA encourages support of H.R. 2366.


US Senators Reintroduce Bill Aiming to Provide Relief in Family Farm Bankruptcies

Per a 5/26/17 press release, US Senators Reintroduce Bill Aiming to Provide Relief in Family Farm Bankruptcies: Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) and Sen. Al Franken (D-Minn.) have reintroduced legislation that corrects a Supreme Court ruling (Hall v. United States) that they said made it harder for family farmers to reorganize their finances when falling on hard times, according to a press release on Friday.

The Hall v. United States US Supreme Court case holds that in Chapter 12 (family farmer and family fisherman) bankruptcy cases-unlike in Chapter 7 and 11 bankruptcy cases-there is no separate Chapter 12 "bankruptcy estate".

Result is that if real property is sold in a Chapter 12 case, the individuals who are the Chapter 12 debtors owe the IRS tax due on the sale, on any "gain" in the sale, whereas in Chapter 7 or 11, it would be the Chapter 7 or 11 "bankruptcy estate", and NOT the debtors themselves, who would owe the IRS the tax due on any "gain" in the sale. "Gain", loosely speaking, is sale price minus purchase price.


Household Debt Hits An All-Time High

U.S. household debt reached $12.7 trillion in the first quarter of 2017. That's a record high, topping the pre-recession level in 2008. Your immediate reaction might be concern over anything passing financial crisis levels, but it's more complicated than that. An abundance of mortgages, many made to poorly qualified borrowers, helped sink the economy a decade ago.

That's not what's happening now. One way to look at the latest debt level: Americans have returned their finances to a better balance as the economy has healed, helped in part by an improving job market and attention to debt.

"Many whose credit was damaged during the economic crisis have restored their financial health to the level where they can qualify for mortgage loans, credit cards, auto financing and other types of credit," says Bruce McClary with the National Foundation for Credit Counseling. [as reported in 5/23/17 Credit & Collection News e-newsletter]

Comment of The Bankruptcy Law Firm, PC: Another possibility is that, instead of borrowing more because they are financially healthy, that a large number of consumers are "over-spending", i.e. spending more than those consumers can afford to pay back.


Puerto Rico Declares Bankruptcy

Facing mountainous debt and population loss, the board overseeing Puerto Rico filed Wednesday for the equivalent of bankruptcy protection in a historic move that's sure to trigger a fierce legal battle with the fate of the island's citizens, creditors and workers at stake. The oversight board appointed to lead the U.S. territory back to fiscal sustainability declared in a court filing that it is "unable to provide its citizens effective services," crushed by $74 billion in debts and $49 billion in pension liabilities. The filing casts a shadow of uncertainty over the future of Puerto Rico pensioners, American retirees who own the island's debt, institutional investors who backed the island in good times and businesses with lucrative contracts. But it could also provide hope to residents seeking to preserve access to basic services such as public safety and health care, while also offering a potential route to economic stability for an island that has been suffering for years. Puerto Rico officials have complained that their debt crisis has cut off funds needed to pay doctors and run schools. Puerto Rico has lost 20% of its jobs since 2007 and 10% of its population, sparking an economic crisis that worsens by the day. The island's response has worsened matters. Politicians raised taxes, allowed governmental bureaucracy to balloon, borrowed to pay the bills and promised pensions that the island could not afford. [reported in Wall Street Journal of 050417 and in Credit & Collection e-newsletter of 050417]


Justice Department Says People In Marijuana Business Can't Use Bankruptcy

People who make money from the marijuana industry can't use the federal bankruptcy courts when they get into financial trouble, says a Justice Department bankruptcy watchdog. U.S. Trustee Program director Cliff White wrote a letter to trustees who handle consumer bankruptcy cases earlier this week reminding them that the drug is illegal under federal law and warning them not to handle any money from the sale of marijuana-related property.

The one-page letter, sent on Wednesday, said the Justice Department division has seen an increase in the number of bankruptcies where "marijuana assets"are disclosed. The division oversees trustees who handle personal and corporate bankruptcy filings. Often, their role requires them to take in monthly payments that a bankrupt person makes on a debt-repayment plan.

Trustees may also be required to sell off a bankrupt person's valuable property. "Our goal is to ensure that trustees are not placed in the untenable position of violating federal law by liquidating, receiving proceeds from, or in any way administering marijuana assets," Mr. White said. [as reported in Credit & Collection 5/1/17 e-newsletter]


63% Of Medical Debt Complaints To Federal Regulators Assert Money Isn't Owed

Sixty-three percent of consumer complaints about medical debt collection claim the debt was never owed, was previously paid or discharged through bankruptcy or was not verified debt, according to a recent report. In its report Medical Debt Malpractice, consumer advocacy group United States Public Interest Research Group and left-leaning think tank Frontier Group analyzed 17,701 medical debt collection complaints filed with the Consumer Financial Protection Bureau over more than three years. The agencies found medical debt reflects more than half of collections on consumer credit reports. In addition, complaints about medical debt collection are the second most common grievance filed with CFPB after credit card complaints.

For medical debt collection complaints, data revealed 48 percent of all complaints are attributed to "continued attempts to collect debt not owed."

The top three complaints related to this issue are "debt is not mine" (24 percent), "debt was paid" (21 percent) and "not given enough info to verify debt" (15 percent). The report also found instances of harassment from collectors. Researches stated medical bill complaints are concentrated to a small number of companies, as 10 companies accounted for more than 20 percent of all medical bill complaints. Transworld Systems was the company with the highest number of medical debt collection complaints, followed by Commonwealth Financial Systems and Tenet Healthcare Corp., according to U.S. PIGRG. [as reported in Credit & Collection 4/14/17 e-newsletter]


US House of Representatives Votes to Create New Section of Bankruptcy Code

US House of Representatives Votes to Create New Section of Bankruptcy Code, Just for Banks The US House of Representatives voted on 4/6/17 to add a new section to the Bankruptcy Code just for banks, a measure meant to allow banks to fail without needing taxpayer bailouts or setting off a crisis. [Reported in 4/6/17 Washington Examiner, and reported in ABI e-newsletter of 4/6/17]. For this proposed new "banks only" section of the Bankruptcy Code to become law, the US Senate would also have to vote to adopt the new provision, and the President would have to sign the new legislation into law. Under the Bankruptcy Code as it stands at present, banks, savings and loans, and other bank-like financial entities are prohibited from filing bankruptcy, by 11 USC 109(b)(2) and 109(d), except that an uninsured State member bank can file Chapter 11. Almost all banks are FDIC insured, and as such are prohibited from filing bankruptcy in any Chapter, under the present Bankruptcy Code.


Payless Hits Ch. 11 With Plans To Close 400 Stores

Payless ShoeSource Inc. and 28 affiliates filed for Chapter 11 bankruptcy on Tuesday, 4/4/17, with more than $1 billion in liabilities and a plan in hand to lop off significant debt and immediately shutter 400 stores.

The shoe giant, with 4,400 stores in over 30 countries, said in its filing in Missouri that most of its first- and second-lien lenders are on board with a restructuring support agreement, but warned it expects a fight with real estate companies over existing leases.


Debt Collection Firm Files Bankruptcy; Owes $460M

Saddled with $460 million in debt, a Centennial-based debt collector has filed Chapter 11. SquareTwo Financial, which has more than 200 employees at its DTC headquarters and call center, filed its bankruptcy petition in the Southern District of New York on March 19. The company confirmed through a spokesperson that it will shut down all its operations, including its 60,000-square-foot office in Centennial, by the end of the year. SquareTwo reported assets of $311 million and liabilities of $460 million. Its bankruptcy plan calls for erasing $130 million in debt. Court filings show SquareTwo seeks to sell the business to a South Carolina collection agency, Resurgent Holdings. According to bankruptcy filings, Resurgent would invest $405 million and pay $264 million for equity in certain SquareTwo subsidiaries. SquareTwo then would pay off selected creditors and wind down.

P. Scott Lowery started SquareTwo Financial under the name Collect America Ltd. in 1994. The University of Denver-educated lawyer then started a law firm franchise to grow the business. Collect America would buy past-due debt from banks, credit card companies and other lenders below face value, sending it to franchisee law firms to collect. In exchange for back-office support from Collect America, franchisees received a fee and sent the collected money back to the firm. The company has since dropped its franchise model, but still works with a network of law firms. [as reported in 3/23/17 Credit & Collection e-newsletter]


Credit Reports to Exclude Certain Negative Information, Boosting FICO Scores

March 13, 2017
Wall Street Journal

Many tax liens and civil judgments soon will be taken off people’s credit reports, the latest move to omit negative information from the powerful financial scorecards.

Click here to read the full article


Bank Card Default Rate Hits 42-Month High

Bank Card Default Rate Hits 42-Month High. Data through January 2017, released today by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults, shows the composite rate up three basis points from the previous month at 0.92% in January. The bank card default rate recorded a 3.21% default rate, up 26 basis points from December. Auto loan defaults came in at 1.06%, up three basis points from the previous month.

The first mortgage default rate was 0.72%, up one basis point from December.

All five major cities saw their default rates increase in the month of January. Miami had the largest increase, reporting 1.67%, up 14 basis points from December. Miami's composite default rate is at a 31-month high. Dallas and Los Angeles both reported eight basis point increases from the previous month at 0.75% and 0.80%, respectively, in January. Chicago saw its default rate increase five basis points to 1.03%. New York reported a default rate increase of one basis point from the last month at 0.88%. When comparing the bank card default rates among the four census divisions, the default rate in the south is considerably higher than the other three census divisions. [as reported in 2/23/17 Credit & Collection e-newsletter]


US Household Debt Climbs To $12.58 Trillion

Are you feeling nostalgic for 2008? Perhaps not, but we are heading toward an unpleasant milestone set in 2008 - a record amount of household debt. The New York Fed's February 2017 Quarterly Report on Household Debt and Credit reports that our collective household debt has reached $12.58 trillion. At the current rate of increase, household debt should surpass the 2008 peak of $12.68 trillion sometime this year. It's not unreasonable to expect cumulative debt to rise over time even if interest were not considered, since the number of households in the U.S. expands every year. There were125.82 million American households in 2016 compared to 116.78 in 2008. Even so, the overall trend line is cause for concern. Given that runaway debt was a major driver in the Great Recession, should we be worried that another meltdown is on the way? Probably not. For answers, look beyond the cumulative debt number to the changing nature of that debt. The New York Fed's report breaks down household debt into specific components: housing/mortgage debt, student loan debt, auto loan debt, and credit card debt. While mortgage debt is still the largest component of household debt, that debt is not rising as rapidly as other forms of debt in relative terms.

[as reported in 2/23/17 Credit & Collection e-newsletter]


"Barton Doctrine" Cases Being Appealed in Second Circuit:

"Barton Doctrine" cases being appealed in Second Circuit: Wait and see whether or not the law in the Second Circuit move in, or away from, the direction of the Ninth Circuit, by holding that the Supreme Court's Barton doctrine not only bars suits against trustees but also against other important players in bankruptcy cases such as creditors' committees and plan administrators? Litigation arising from the chapter 11 liquidation of commodities broker MF Global Inc. is raising the issue in the Second Circuit, based on four decisions handed down by Bankruptcy Judge Martin Glenn in New York since October. Based on the Barton doctrine, he has now enjoined Bermudian insurers from suing in Bermuda to enforce an arbitration clause in an insurance policy. The insurance companies are already appealing to district court, and the appeals likely won't stop there.


Number of Retirees With Student Loan Debt Quadrupled In Last Decade

The vast majority of people in the United States holding student debt are between the ages of 18 and 39, but a new report suggests seniors are taking on more of the debt burden for their children and it is endangering their welfare. The number of seniors carrying student debt quadrupled during the last decade while the average amount of debt those people carry doubled in that time, as did the portion of student debt held by people over 60, according to a new report from the Consumer Finance Protection Bureau.

Because many parents and grandparents are borrowing the money for their children and grandchildren to go to college, but offering the help comes at a price for some as they endanger their ability to pay for healthcare and risk garnishment of social security payments if they fall into default.

"Student loan debt is clearly an intergenerational problem, and what we're seeing is that this is unfortunately putting older consumers' retirement at risk," Seth Frotman, assistant director of the Office for Students at the CFPB, told The Washington Post. "Older Americans are struggling under the weight of student loan debt." Researchers at the CFPB found people over 60 are the fastest growing demographic borrowing money for school, currently carrying about $66.7 billion in student loans -- 6.4 percent of all student debt, more than double the 2.7 percent it was in 2005. [as reported in Credit & Collection e-newsletter of 1/20/17]


Student Debt Payback Far Worse than Believed

Many more students have defaulted on or failed to pay back their college loans than the U.S. government previously believed, the Wall Street Journal reported today. Last Friday, the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers. When the Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8 percent of all colleges and trade schools in the country. The new analysis shows that at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years. The changes could have implications for federal policy.

Some lawmakers have endorsed the idea of punishing colleges if enough students aren't paying back the loans. [As reported in 1/19/17 American Bankruptcy Institute e-newsletter, referring to Wall Street Journal report]


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