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2015 Bankruptcy Articles

Analysis: Company Debt Distress Level at Highest Since Recession

December 31, 2015
American Bankruptcy Institute e-newsletter

The Federal Reserve this month took interest rates up for the first time in nearly a decade, and while it might take a few years for higher rates to hit companies, there are many companies that aren't prepared to eat the higher costs, USA Today reported on Monday. The number of companies with the lowest credit ratings and most negative outlooks jumped to 195 in December, the highest level since March 2010, says Standard & Poor's. The biggest culprit for the jump in these so-called "weakest links" is the oil and gas sector, which accounts for 34 of them. But financial companies are close behind, representing 33 of the weakest links, says S&P.

Fannie and Freddie Give Birth to New Mortgage Bond

December 29, 2015

The federal government is trying to get taxpayers off the hook for billions of dollars of potential losses if another mortgage crisis arrives—and in the process, it is quietly giving birth to a new asset class.

Judge Rejects San Bernardino’s Bankruptcy Proposal

December 28, 2015
American Bankruptcy Institute e-newsletter

A federal judge said San Bernardino’s leaders need to explain their plan to have the southern California city exit bankruptcy protection by repaying a fraction of its debts instead of raising taxes, the Wall Street Journal reported today. Bankruptcy Judge Meredith Jury on Wednesday rejected - for a second time - the city’s proposal to cut debts, saying that it didn’t contain enough information for bondholders, retirees who face health-care cuts and others to vote on the proposal. She agreed to consider another draft of the plan at a March 9 hearing in U.S. Bankruptcy Court in Riverside, Calif.

Chase To Pay Restitution On Alleged Debt Collection Violations

December 15, 2015
Credit & Collection News e-newsletter

Attorney General Kamala D. Harris recently announced a stipulated judgment that resolved allegations that JPMorgan Chase (Chase) committed credit card debt collection violations. According to the allegations, Chase committed credit card debt collection abuses against thousands of Californians. Specifically, the settlement addresses debt collection wrongdoing. Examples allegedly include collecting incorrect amounts, selling bad credit card debt and running a debt collection mill. Chase will pay $50 million in restitution to consumers nationwide, with about $10 million of that going to California consumers. “Abusive and illegal debt collection practices will not be tolerated in California,” Harris said. “This settlement provides real relief to tens of thousands of Californians, including service members, and prevents JPMorgan Chase from continuing these deceptive and illegal debt collection practices.” Chase filed more than 125,000 credit card collection lawsuits against California consumers between 2009 and 2013. The company allegedly relied on illegally robo-signed sworn documents. The attorney general initially filed the litigation against Chase on May 9, 2013. The stipulated judgment resolves that filing. Separately, Chase will pay additional penalties and fines to the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau and other states in similar actions.

Americans Are Sinking Further Into Credit Card Debt

December 10, 2015
Credit & Collection News e-newsletter

Consumer credit card debt is rising again. The average indebted household now carries a revolving balance of $15,355, according to a new study by NerdWallet. With credit cards carrying an average interest rate of 18%, that balance costs the average household $6,658 - 9% of income - in interest per year. Debt levels are down from the recession - they averaged almost $17,000 in December 2008 - but up from March 2014, when average household was slightly more than $14,000, NerdWallet notes in its Household Debt Study. "After the significant dip following the recession, there was a lot of talk that Americans were using their credit cards better," says NerdWallet credit expert Sean McQuay. "The numbers aren’t showing that. Americans are taking on more debt." Reasons for Debt - Even after accounting for inflation, household debt has jumped 15% faster than income over the past dozen years. Among the reasons, the study cites increases in medical costs and food expenses; both have greatly outpaced wage growth since 2003. (Of the costs that have increased more slowly than your paycheck, transportation is the only one that tends to have a meaningful impact on household budgets.)

CFPB Debt Collection Rules: Requirement To Maintain Original Account Records

December 8, 2015
Credit & Collection News e-newsletter

The Consumer Financial Protection Bureau is preparing to release its proposed regulations on debt collection in the near future. The structure and substance of these extensive regulations, and their impact on the financial services industry, have been the source of considerable speculation. Two recent CFPB enforcement actions may shed some light on the Bureau's thinking as it finalizes its proposed rules on the specific information and documentation that is required to be transferred with all debt sales and placements. More specifically, these enforcement actions reveal that the CFPB is likely to require third-party debt collectors to possess certain information about a debt prior to contacting a consumer. The current regulatory framework does not set a national standard for the information and documents that a creditor must transfer when a consumer debt is placed with third-party collectors or sold to debt buyers. Thus, although the information provided during the sale of debt varies between each set of buyers and sellers, it generally includes the name on the account, last known address, telephone number, date of birth, interest rate, the date of the last payment, current balance, and the date the account was opened. The recent CFPB enforcement actions may serve as a preview for the regulations that the CFPB may impose in the future. As discussed below, the CFPB's position in these enforcement actions implies that the final rules may require debt collectors to review the original, account-level documents before seeking to collect on a debt.

55 Percent of Retail Bankruptcies Since the 2005 Code Change Have Ultimately Ended in Liquidation

November 19, 2015
American Bankruptcy Institute

American Bankruptcy Institute, in its 11/19/15 e-news letter, reports that ABI Resident Scholar Prof. Michelle Harner has talked with Holly Etlin, Managing Director in AlixPartners Turnaround and Restructuring practice, and AlixPartners Director James Hogarth about their recent study examining retail bankruptcies since the implementation of BAPCPA in 2005. Etlin and Hogarth found that 55 percent of retail bankruptcies since the 2005 Code change have ultimately ended in liquidation rather than restructuring.

US Banks Said to Hold $10tn of ‘Risky’ Trades

November 10, 2015
Financial Times

The repeal of part of the Dodd-Frank financial reforms has left big US banks holding $10tn of “risky” derivatives trades on their books, according to an investigation by Democrats.

Senator Elizabeth Warren, a liberal Wall Street foe, said the repeal - which sparked a firestorm when it was slipped into a budget bill in December 2014 - had left federally insured banks exposed to dangerous swaps trades.

U.S. Trustee Program Reaches $81.6 Million Settlement with Wells Fargo Bank N.A. to Protect Homeowners in Bankruptcy

November 5, 2015
U.S. Department of Justice

The Department of Justice’s U.S. Trustee Program has entered into a national settlement agreement with Wells Fargo Bank N.A. (Wells Fargo) requiring Wells Fargo to pay $81.6 million in remediation for its repeated failure to provide homeowners with legally required notices, thereby denying homeowners the opportunity to challenge the accuracy of mortgage payment increases. These failures violated federal bankruptcy rules that took effect in December 2011 and imposed more detailed disclosure requirements to ensure proper accounting of fees and charges on homeowners in bankruptcy.

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Why Your Favorite Retailer Didn't Come Back from Bankruptcy

October 22, 2015

According to a new study by AlixPartners advisory firm, 55 percent of all U.S. retailers that have filed for bankruptcy over the past 10 years have ended up in liquidation. By comparison, less than 5 percent of nonretail filings over that period have had the same result.

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The Supreme Court May Weigh In On Student Debt Battle

October 19, 2015

Mark Tetzlaff is a 57-year-old recovering alcoholic who has been convicted of victim intimidation and domestic abuse. He may also be the person with the best shot at upending the way U.S. courts treat student debt for bankrupt borrowers.

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House Delays Consumer Mortgage Protections

October 12, 2015
The Hill

On Oct. 7, the House of Representatives passed bipartisan bill 3192 which could provide the mortgage origination industry with a four-month window (through Feb 1, 2016) in which it will be immune from liability in civil actions by aggrieved consumers and regulatory actions by governmental agencies including the Consumer Finance Protection Bureau for failures to comply with new standards governing the disclosure of accurate information to consumers in the mortgage origination process.

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Commentary: Chicago's Mounting Fiscal Challenges

October 1, 2015
ABI e-Newsletter

With so much civic and commercial activity, it is difficult to reconcile Chicago's seeming vitality with news reports that the city is more financially distressed than Detroit, according to a City Journal commentary. In May, the Illinois Supreme Court's unanimous rejection of state legislators' attempt to enact pension reform, along with Moody's downgrade of the city's debt to junk status, triggered a cascade of problems requiring painful decisions. First is a 1 percentage-point increase in the Cook County sales tax, bringing Chicago's combined state, county and city sales tax to the highest in the nation at 10.25 percent. Mayor Rahm Emanuel is also hiking property taxes, proposing a $600 million increase to help the city start making required pension payments. In addition, the city's public school system has a $500 million budget hole and may run out of money this year.

As Banks Retreat, Private Equity Rushes to Buy Troubled Home Mortgages

September 29, 2015

Private equity and hedge fund firms have bought more than 100,000 troubled mortgages at a discount from banks and federal housing agencies, emerging as aggressive liquidators for the remains of the mortgage crisis that erupted nearly a decade ago.

Payday Lenders Sue FDIC, Saying it "Stigmatized" Them

September 28, 2015
Consumer Affairs

The federal government has gone to war against payday lenders in recent years, and now the payday lenders are fighting back in court. A trade association, the Community Financial Services Association of America, and Advance America, a large payday lender, have sued the Federal Deposit Insurance Corporation (FDIC), saying it pressured banks into breaking ties with the payday lenders

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Sbarro Looks Beyond Food Courts in Post-Bankruptcy Comeback Bid

September 24, 2015
Bloomberg Business

Sbarro, the pizza chain synonymous with shopping-center food courts, is venturing outside the mall.

After filing for bankruptcy twice in the past five years, Sbarro is staking a comeback on becoming a more traditional pizza chain -- complete with stand-alone locations and delivery guys -- putting it in closer competition with Pizza Hut, Domino’s and Papa John’s.

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August 18, 2015
American Bankruptcy Institute e-newsletter

Commentary: U.S. Lacks Ammo for Next Economic Crisis

As the U.S. economic expansion ages and clouds gather overseas, policymakers worry if they will have the firepower to fight back a recession when one does arrive, according to a commentary today in the Wall Street Journal. The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending. Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers. Although economists believe that the U.S. is near recession, looming threats are a reminder that the slow-growing global economy is just a shock away from peril. Japan's economy contracted in the second quarter, and Europe recorded lackluster growth. China's slowdown, meanwhile, appears to be more severe than global policymakers initially realized, and a currency devaluation there might spur trade frictions. With the U.S. expansion entering its seventh year, policymakers are planning how to respond to the next downturn, which history shows is inevitable. The current expansion is now 16 months longer than the average since World War II, and none has lasted longer than a decade.

American Apparel Warns It Needs to Raise Money

August 13, 2015
American Bankruptcy Institute e-newsletter

American Apparel Inc. warned on Tuesday that it had about $13 million of available cash and risked default if it didn’t raise money or refinance its debt, the Wall Street Journal reported yesterday. The retailer, which also said that it would miss a regulatory deadline to file its June quarter financial results, toughened its language from a month earlier, when it disclosed it was running short of cash to meet its obligations over the next 12 months and said it intended to close several stores as part of an aggressive cost-cutting plan. American Apparel has staved off bankruptcy through cash infusions. It last amended its $50-million line of credit with Capital One in March, according to regulatory filings.

Judge’s Comments Reignite Bankruptcy Venue Debate

August 13, 2015
American Bankruptcy Institute e-newsletter

Bankruptcy Court Judge Russell Nelms said that the practice of forum shopping (filing in a court remote from a business's headquarters or major center of operations) takes a toll on the public's perception of bankruptcy as a fair way to sort through competing claims to limited funds, the Wall Street Journal's Bankruptcy Beat blog reported yesterday. "Even in 'successful' cases hard-working people lose jobs, have their retirement cut, or have their claims significantly compromised," Judge Nelms wrote in the chapter 11 case of the Crosby National Golf Club, which is in California but is managed from offices in Fort Worth, Texas. "And yet, most large cases today are filed with little or no thought given to whether small or medium-sized creditors can appear and be heard in those cases." Scholars have criticized and defended the practice. "Judge Nelms is right about the exclusion of employees and small creditors from big bankruptcy cases," said Prof. Lynn M. LoPucki of the UCLA School of Law. "Forum shopping allows top management and the largest creditors to cut deals that benefit themselves while preventing stakeholders from participating." The Delaware and New York bankruptcy courts have their defenders. Big cases arrive with complex capital structures and a history of financial maneuvers and restructuring negotiations that could prove daunting to a judge who hasn't seen it all before, said Erik Gordon, a professor at the University of Michigan's Ross School of Business. "New York and Delaware courts have experience with the complex debt instruments and overall financial structure of large, troubled companies," Gordon said.

Recent Eleventh Circuit Decision Subjects Debt Collectors To FDCPA Liability For Filing Proofs Of Claim As To Time-Barred Debts

August 6, 2015
Credit & Collection e-newsletter

Debt collectors filing bankruptcy proofs of claims in the Eleventh Circuit should take caution, as they will now be subject to the Fair Debt Collection Practice Act, In Crawford v. LVNV Funding, LLC, the Eleventh Circuit ruled that by filing a proof of claim in a Chapter 13 bankruptcy case as to a time-barred debt, a debt collector violated the FDCPA by using false, deceptive and misleading means in connection with the collection of a debt. In Crawford, a consumer owed approximately $2,000 to a furniture company. A debt collector purchased the debt from the furniture company in September 2001, and the last transaction on the consumer’s account occurred about one month later in October 2001. Alabama’s three-year statute of limitations expired on the enforcement of the debt in October 2004. In 2008, the consumer filed a Chapter 13 bankruptcy petition. During the bankruptcy proceeding, the debt collector filed a proof of claim in an effort to collect on the time-barred debt. In response, the consumer filed an adversary proceeding against the debt collector, alleging that the debt collector had violated the FDCPA by attempting to enforce a debt that was barred by the applicable statute of limitations. The U.S. Bankruptcy Court for the Middle District of Alabama granted the debt collector’s motion to dismiss the FDCPA claim, and the U.S. District Court affirmed. The consumer appealed to the Eleventh Circuit Court of Appeals, which reversed in the consumer’s favor. The Eleventh Circuit held that the filing of a proof of claim is an attempt to collect a debt, and therefore, subject to the FDCPA.

Relativity Media Files Bankruptcy; Film and TV Units for Sale

July 30, 2015

Relativity Media - the digital-age entertainment company that claimed clever financing and data analysis could help it unlock the secret to box office riches — filed for bankruptcy protection Thursday against a swarm of disgruntled investors and other creditors. The 11-year-old company that founder Ryan Kavanaugh had styled as a “next-generation global media company” will be sold at auction, a statement from the company said.

Taxi bigwig Evgeny Freidman Files for Bankruptcy, Blames Uber for Unpaid Loans

July 22, 2015
NY Daily News

Taxi tycoon Evgeny Freidman filed for Chapter 11 bankruptcy Wednesday - claiming he's taken one hail of a hit from Uber and other app-driven competitors.

Click here to read the full article

Legislation Which is Moving through the California State Legislature

July 23, 2015

Following is the 7/23/15 report from the National Association of Consumer Bankruptcy Attorneys ("NACBA") regarding legislation which is moving through the California State Legislature, which if passed by the California State Legislature, and if signed into law by Governor Brown, would substantially increase the dollar amount of the California state homestead exemptions:

Dear California NACBA Member:

Thank you to everyone who has reached out to their State Legislators in support of SB 308. Already, California NACBA members have helped move the bill through the Senate and through one committee in the Assembly. But, we are not done yet, and there are powerful special interests trying to derail this bill. In order for it to move through the final stages of the legislative process, we need all California members to get actively involved in the effort.

To update you, the amended version of the legislation would increase California’s 3-tier state homestead exemption levels to $300,000 for disabled persons and seniors, $150,000 for a family unit and $100,000 for a single individual. It also would make several other important improvements for Californians in financial distress, including elimination of the 6 month reinvestment requirement for homestead sale proceeds. A copy of the amended legislation, introduced by Senator Bob Wieckowski, is attached.* Please feel free to direct any questions about the contents of this bill to NACBA Legislative Chair Ike Shulman at

NACBA is holding a short informational training session on how SB 308 will improve the CA exemptions and how you can get involved to help push the legislation across the finish line. Face-to-face meetings are the most effective way to influence your Legislator, and most members of the Assembly are at home the first few weeks in August. The training session will provide you with the information and knowhow to conduct an effective meeting with your State Legislator, as well as other meaningful outreach activities. Written materials in support of SB 308 will also be distributed to participants.

Grocery Store Chain A&P Files for Bankruptcy Again

July 20, 2015

Storied supermarket chain Great Atlantic & Pacific Tea Co Inc [GRTAT.UL], better known as A&P, filed for bankruptcy protection for the second time in five years and said it would sell more than a third of its stores.

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New York Times Newspaper Calls for Bankruptcy Reform for Primary Mortgages, Student Loans and Puerto Rico

July 16, 2015

The large debt loads that weigh heavily on Americans and the American economy -- in mortgages, student loans, and most recently, the bonds of Puerto Rico -- have one thing in common: They cannot be restructured in bankruptcy, according to a New York Times editorial today. The solution is for Congress to liberalize the bankruptcy law with targeted amendments. The place to start, according to the editorial, is to allow homeowners who cannot repay the mortgage on a primary home to seek bankruptcy protection. Some 7.7 million homeowners still owe a total of $260 billion more on their mortgages than their homes are worth; nearly half of these are deeply underwater, putting them at risk of default. Private student loan debt, which does not provide the flexible repayment options available on federal student loans, should also be dischargeable in bankruptcy. In Puerto Rico, a disorderly default seems likely unless Congress provides bankruptcy protections for utilities and other public corporations that have accumulated some $25 billion in debt.

NACBA Supports Consumer Reporting Fairness Act

July 16, 2015

On 7/15/15, the National Association of Consumer Bankruptcy Attorneys (“NACBA”) joined with consumer advocates in supporting “The Consumer Reporting Fairness Act,” legislation introduced in the US Senate by Senators Sherrod Brown (D, OH), Richard Blumenthal (D-CT), Dick Durbin (D-IL), Al Franken (D-MN), and Jeff Merkley (D-OR). That bill which would amend bankruptcy law to require creditors to ensure that a debt discharged in bankruptcy shows a zero balance on the consumer’s credit report in an accurate and timely manner. The bill also would permit consumers to take legal action against creditors that fail to report a discharged debt that is no longer owed. Hopefully the US Congress will pass this bill, so it will become law. Consumers should write their US Senators, urging the US Senate to support this bill.

California legislature (SB 308)

July 1, 2015
NACBA (National Association of Consumer Bankruptcy Attorneys)

NACBA (National Association of Consumer Bankruptcy Attorneys) on 7/1/15 made the following report on efforts in California legislature to raise the California homestead exemption amount to $300,000, by passing a bill in the California legislature (SB 308), to raise the amount. The bill has been passed by the California state Senate, and is working its way through the California state House; it is unclear whether or not it will pass:

NACBA is pleased to report that thanks to the hard work of our California membership, SB 308 has cleared another hurdle on the way to passage. Today, the Assembly Judiciary Committee approved the bill. Next up: the Assembly Appropriations Committee. After that the bill has three more stops before final adoption: (1) approval on the Assembly floor; (2) back to the Senate so that chamber can agree to modifications to the bill made by the Assembly; and (3) to the governor for his signature.

Having said that, we don’t want you to think that approval of the bill is a sure thing. Today’s vote in the Assembly Judiciary Committee was successful by only a narrow majority, and only because a committed group of CA NACBA members wrote letters, had their clients write letters, drove considerable distances to meet with lawmakers and testifed at the Assembly hearing. While we know there are several hurdles we still need to get over, we feel good that we are meeting the challenges at each stage of the process.

The bill was approved by the Assembly Judiciary Committee today over the objections of the CA Bankers Association, representatives of the debt buyers industry, and the Chapter 7 trustees. We fully expect these groups to keep up their pressure to defeat the bill.

We don’t yet know when the Assembly Appropriations Committee will meet, but you should expect to hear more from us in the coming days about how you can get involved and help us get over the finish line so that Californians in financial distress seeking to get back on their feet may benefit from updated and strengthened exemptions.

Again, many thanks to all the CA NACBA members who took the time to submit a letter, make a call, or enlist clients to weigh in supportively. Today’s vote shows you can make a difference!

California members, please stay tuned for next steps as this legislation continues on its way to final passage. But for now, a job well done for NACBA! Kudos to everyone involved.

ANALYSIS: Call it a Comeback for Risky Home Buyers

June 25, 2015
ABI (American Bankruptcy Institute) e-newsletter

More Americans who recently went through foreclosure or bankruptcy are getting home loans, the Wall Street Journal reported today. A new wave of nonbank lenders is bringing these risky buyers back into the housing market some seven years after the mortgage meltdown. The lenders are targeting borrowers who have recently gone through a foreclosure, short sale or bankruptcy -- but who they say are safer than their credit profiles suggest. They are sometimes approving borrowers in as little as a few months or even weeks after a foreclosure. "Lenders are trying to carve out niches that play upon the fact that underwriting remains, by historic standards, very tight," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. Several lenders have entered this market since the housing crisis, and their numbers, while still small, have picked up over the past year. Cecala estimates that mortgage originations for borrowers who have recently been through a major financial setback and are back on their feet will total at least $5 billion this year. That's up from around $2 billion to $3 billion last year and expected to be the highest since the housing boom, he said. That compares to a total of $1.3 trillion of mortgage originations that are expected for 2015, according to the Mortgage Bankers Association.

Article is from 6/25/15 ABI (American Bankruptcy Institute) e-newsletter

COMMENTARY: Commission Recommendations Favorable to Secured Lenders on Cramdown Interest Rate, Rejected Till

June 11, 2015
ABI (American Bankruptcy Institute) e-newsletter

Determining secured lender cramdown interest rates in chapter 11 cases has been widely debated, and recent court rulings have proven to be inconclusive, according to a commentary by Kaye Scholer attorneys in the May/June ABF Journal. The rate of interest that a non-consenting secured lender is entitled to when its secured loan is restructured under a chapter 11 plan of reorganization has been a hotly debated issue since the U.S. Supreme Court handed down its decision in Till v. SCS Credit Corp. The decision was made in the context of a chapter 13 case concerning an individual with regular income. As a result of the complex language of Sect. 1129(b)(2)(A) of the Bankruptcy Code and the Supreme Court's decision in Till, case law regarding cramdown interest rates to be afforded secured lenders in the chapter 11 context has been murky and confusing, according to the commentary. Recent case law from the U.S. District Court for the Southern District of New York is decidedly unfavorable to secured lenders in this regard. From the secured lender perspective, the recommendations issued by ABI's Commission to Study the Reform of Chapter 11, at least with respect to the cramdown interest rate issue, present a more favorable approach, according to the commentary.

This article if from 6/11/15 ABI (American Bankruptcy Institute) e-newsletter

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NACBA Reports on Proposed Legislation

June 9, 2015
National Association of Consumer Bankruptcy Attorneys

NACBA (National Association of Consumer Bankruptcy Attorneys) reports on proposed legislation, moving through California state legislature, that, if it becomes law, would increase the California homestead exemption to $300,000:

NACBA says:

Thank you to everyone who reached out to their State Senator in support of SB 308. As we reported previously, the bill passed the Senate on May 22nd! The bill now moves over to the Assembly, where we expect it to be considered by the Judiciary Committee where it needs to be approved before being considered by the full Assembly.

It now is time for you to contact your Assembly Member in support of SB 308.

As a reminder, this legislation would increase California’s state homestead exemption to $300,000 (across the board) and make several other important improvements for Californians in financial distress and bankruptcy attorneys who serve them. A copy of the legislation, introduced by Senator Bob Wieckowski, is attached. NACBA has endorsed this proposal, and the organization’s detailed letter of support is attached for your review. Please feel free to direct any questions about the contents of this bill to Ike Shulman at

We know that some segments of the financial industry are working to kill this bill. Given how important the bill is for more effective bankruptcy relief for CA debtors, it is critically important that all California members reach out to their Assembly Member in support of the bill. We are doing all we can to make it as easy as possible for you to participate in this effort. Please see the simple step-by-step process below detailing how you can engage in the effort.

Reported by NACBA (National Association of Consumer Bankruptcy Attorneys) on 6/9/15.

Home-Equity Lines of Credit See Jump in Delinquencies

June 9, 2015
American Bankruptcy Institute e-newsletter

A decade after homeowners used a soaring real estate market to go on a borrowing binge against their own properties, many are now falling behind on payments, threatening to leave banks on the hook for hundreds of millions of dollars, the Wall Street Journal reported today. Borrowers who took out home-equity lines of credit (Helocs) when prices were near their peak are struggling to keep up as principal finally comes due after years of interest-only payments. Borrowers who signed up for Helocs in 2004 were 30 or more days late on $1.8 billion worth of outstanding balances just four months after principal payments started kicking in, according to data provided to the Wall Street Journal by credit-reporting firm Equifax. That represents 4.3 percent of the balance on outstanding 2004 Helocs, according to Equifax -- a sharp rise from the 2.7 percent delinquency rate on those same Helocs one month before borrowers reached the end of the interest-only period, which typically lasts for 10 years.

This article is from the 6/9/15 ABI (American Bankruptcy Institute) e-newsletter, reporting an article that ran in the Wall Street Journal

American Pharoah Almost Got Repossessed Before Being Born; But the Racing Stable (Zayat Stables, LLC) that Owned his Pregnant Dam filed Bankruptcy, which Stopped Creditors from Repossessing the Pregnant Horse, and American Pharoah continued to be owned by Zayat Stables, LLC, and on 6/6/15 won the Triple Crown of Horse Racing, the First Horse to Win the Triple Crown Since 1978

June 8, 2015
American Bankruptcy Institute e-newsletter

Long before Triple Crown winner American Pharoah was born, he was almost repossessed, Bloomberg News reported on Saturday. This year’s Kentucky Derby, Preakness Stakes and Belmont Stakes winner came from a pair of racehorses whose unborn foals were collateral for a loan that went bad in 2010. By putting his stables into bankruptcy, owner Ahmed Zayat shielded the thoroughbreds from creditors, giving him the chance to keep the first horse since 1978 to win the premier U.S. horse racing series. Before it filed for bankruptcy in 2010, Zayat Stables LLC had run up more than $38 million in debts, mostly to Fifth Third Bank, which accused Zayat of trying to dodge a requirement that he personally repay a loan if his company couldn’t. He also owed a thoroughbred auction house, Keeneland Association Inc., almost $2.4 million for horses, according to bankruptcy court papers. In the run-up to the stables’ February 2010 bankruptcy filing, Zayat traded allegations of unfair business dealings and improper conduct with his creditors. The chapter 11 case temporarily halted Fifth Third Bank’s effort to repossess $37 million worth of horses, including American Pharoah’s parents, Pioneerof the Nile and Littleprincessemma.

This article is from 6/8/15 ABI (American Bankruptcy Institute) e-newsletter.

Analysis: Lawsuits Against Student Debtors Echo Foreclosure Problems

June 4, 2015
American Bankruptcy Institute e-newsletter

As lenders turn to the courts to collect on an increasing number of student loan defaults, consumer advocates and lawyers defending debtors say that many of their suits are marred by missing documents and procedural errors, Bloomberg News reported today. Like mortgages, student loans were bundled into packages and sold to investors. "This is robosigning 2.0 with student loans," says Robyn Smith, a lawyer with the National Consumer Law Center, a nonprofit advocacy group. "You have securitized loans in these large pools; you have the sloppy record keeping," as in the mortgage crisis. The National Collegiate Student Loan Trusts are investment vehicles created by a Boston company called First Marblehead that concentrates on education lending. From 1996 through 2007, First Marblehead bought student loans from lenders including Bank of America, JPMorgan, and a bank now owned by Citizens Bank. It transferred batches of loans to trusts it created -- more than two dozen in all. The trusts sold bonds backed by the loans. The trusts are responsible for collecting loan payments from borrowers and paying out interest to bondholders. In 2013 bond rater Moody's Investors Service said that it expected losses to reach as high as 50 percent in 15 National Collegiate trusts it examined.

Article is from 6/4/15 ABI (American Bankruptcy Institute) e-newsletter

Bank of America and JPMorgan Chase Agree to Erase Debts From Credit Reports After Bankruptcies

May 7, 2015
New York Times

Two of the nation’s biggest banks will finally put to rest the zombies of consumer debt — bills that are still alive on credit reports although legally eliminated in bankruptcy — potentially providing relief to more than a million Americans.

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Bankruptcy Trustees Claw Back College Tuition Paid for Filers’ Kids

May 5, 2015
Wall Street Journal

Soaring college tuition payments are drawing attention from unexpected quarters: bankruptcy courts.

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Puerto Rico on the Brink of Needing to File Chapter 9 Municipal Bankruptcy, but because it is a Territory, it is Not Eligible to do so, Unless US Congress Amends Bankruptcy Code

April 30, 2015
American Bankruptcy Institute e-newsletter

Puerto Rico is in financial trouble, after years of bad policies, mismanagement, excessive debt and bad luck, according to a New York Times editorial today. Its economy has been shrinking or stagnant for a decade, and its unemployment rate has soared to nearly 12 percent. The commonwealth and its utilities have debt of $73 billion, its public pension funds are woefully underfunded, and one state agency has warned that the government could be forced to shut down soon because it might run out of money, according to the commentary. Lawmakers in Washington, D.C., and San Juan need to come up with a plan that addresses the financial and economic problems of the territory, which is home to 3.6 million American citizens, according to the commentary. The island's difficulties also affect investors in the 50 states who own the tax-exempt bonds issued by Puerto Rico's government and utilities. One of the biggest and most immediate problems for the island is the roughly $20 billion of debt owed by three government-owned companies: the electricity utility, the water and sewer system and the highway authority. Because Puerto Rico is a territory, these businesses are not allowed to restructure their debt in chapter 9 bankruptcies. Congress should approve a new bill that would allow these and other Puerto Rican government-owned companies, as well as municipalities, to use chapter 9, according to the editorial.

This article is from 4/30/15 ABI (American Bankruptcy Institute) e-newsletter

High Court Won't Touch Ruling Applying FDCPA to Bankruptcy

April 21, 2015
American Bankruptcy Institute e-newsletter

The Supreme Court declined yesterday to review a decision exposing debt collectors to liability within bankruptcies over their actions, leaving intact an Eleventh Circuit decision extending Fair Debt Collection Practices Act protections to a debtor, Law360 reported yesterday. Stanley Crawford had filed the adversary proceeding against LVNV Funding LLC, which had pursued and received a claim in Crawford's 2008 bankruptcy; LVNV had bought the debt from another company after it was charged off in 1999. Lower courts dismissed Crawford's complaint, but the Eleventh Circuit said in July that LVNV's claim on the money was too old under the FDCPA. The Supreme Court included no reasoning for its decision, simply including it in a list of denials of certiorari it released yesterday. The Eleventh Circuit said that unsophisticated consumers wouldn't anticipate or be able to defend effectively against the filing of a time-barred claim and that circuit precedent combined with the broad language of the act made it applicable in this case.

This article is from ABI (American Bankruptcy Institute) e-newsletter of 4/21/15

Study: BAPCPA May Have Removed Important Form of Financial Relief for Low-Income Debtors

April 16, 2015
American Bankruptcy Institute e-newsletter

The “BAPCPA 2005” major changes that US Congress made to U.S. bankruptcy law, which became effective in October 2005, may be keeping financially struggling people out of bankruptcy court, but it hasn't kept them from going broke, researchers have found, Dow Jones Daily Bankruptcy Review reported yesterday. A new study from the Federal Reserve Bank of New York puts a spotlight on a pocket of financially struggling people who, researchers say, are too poor to file for bankruptcy after federal lawmakers changed the law in 2005 and made it more expensive. Specifically, the 49-page study found that a "sizable group of individuals exists that does not file for bankruptcy, but seems unable to pay off their debts." By cutting off the path to bankruptcy, BAPCPA may have removed the chance for a fresh start for those that need it most, the study said. "These individuals are concentrated at the bottom of the income distribution, and therefore they are the ones who would be expected to benefit most from the relief offered by personal bankruptcy," the researchers said.

This article is from 4/16/15 American Bankruptcy Institute e-newsletter.

Chapter 11 Reform Analysis: The Absolute Priority Rule Problem for Small Business Debtors

April 14, 2015
American Bankruptcy Institute e-newsletter

The Commission on whether Chapter 11 bankruptcy should be amended by the US Congress has made proposals for amending the present Bankruptcy Code's current rules regarding cramming down Chapter 11 plans over the objection of unsecured creditors. "Cramdown" is bankruptcy slang referring to the Bankruptcy Court confirming (ie approving) a proposed Chapter 11 bankruptcy plan, over the objection of certain classes of creditors, and despite the fact that certain classes of creditors voted to REJECT the Chapter 11 debtor’s proposed Chapter 11 plan. Small business owners seeking to reorganize their businesses, in Chapter 11 bankruptcy, want to retain their pre-petition ownership interests (equity interest/stock interest in the debtor’s businesses) because the individual filing the Chapter 11 case has a personal stake in seeing the business succeed, and in profiting from that business succeeding. Chapter 11's absolute priority rule, however, raises the prospect that small business owners may be unable to keep their ownership stake in their reorganized business. If a class of unsecured creditors rejects the plan and the firm cannot afford to pay those creditors' allowed claims in full (with interest if paid out over time) or satisfy the jurisdiction's new value exception, then the debtor's reorganization fails. In order to address this problem, the Commission recommends two significant amendments to the Code's rules on unsecured creditor cramdown. First, it proposes codifying the new value corollary, a recommendation applicable to SME and non-SME debtors alike. Second, for SME debtors without sufficient financial resources to use the new value corollary, the Commission recommends allowing SME debtors to confirm a plan, notwithstanding the absolute priority rule, if they pay the face amount of their unsecured creditors' claims within four years of the plan's effective date.

This article is by ABI Resident Scholar, Professor Anne Lawton, and appeared in 4/14/15 American Bankruptcy Institute e-newsletter

CFPB Sanctions Inland Empire Home Lender Over Allegedly Deceptive Ads

April 9, 2015
L.A. Times

A Rancho Cucamonga mortgage lender has agreed to pay $250,000 to settle accusations by federal regulators that its advertising deceived consumers into believing that the company was affiliated with the U.S. government.

Click here to read the full article

Payday Lenders Face New Rules Amid Allegations of Consumer Abuse

March 25, 2015

Payday lenders face their toughest federal regulations to date following a years-long campaign by consumer groups that accused the firms of charging astronomical interest rates and leaving borrowers in an inescapable debt trap.

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Commentary: New Research Suggests Rules for Debtors are Too Tough

March 17, 2015
ABI (American Bankruptcy Institute) e-newsletter

Far fewer Americans are seeking bankruptcy protection now than before BAPCPA, and evidence is mounting that the law's reforms may have done more harm than good, according to a commentary in The Economist on Sunday. Will Dobbie, of Princeton University, and Jae Song, of the Social Security Administration, look at chapter 13 bankruptcies before the reforms of 2005. They link half a million bankruptcy filings to tax records and use a novel technique to analyze them: Because some bankruptcy judges are more lenient than others, people in similar straits may end up with different bankruptcy decisions. This quirk allows some useful comparisons. Dobbie and Song argue that easier bankruptcy laws have good microeconomic effects: If a creditor may no longer claim large chunks of a bankrupt's salary, that may increase his incentive to work -- and decrease his need to slip out of town, change his job and close down his bank account. On average, those granted bankruptcy earned over $6,000 more in the subsequent year than similarly placed plaintiffs who were rejected. The unlucky ones found it trickier to service their mortgages. Michelle White of the University of California, San Diego and colleagues found that bankruptcy reform caused the default rate on prime mortgages to rise 23 percent.

Senate Bill Would Waive Student Loans In Bankruptcy

March 17, 2015
ABI (American Bankruptcy Institute) e-newsletter

Student loans have long been exempt from the protections offered by bankruptcy, but a new Senate bill would change that. The move come as the White House and lawmakers are working on multiple fronts to attack what is being called a student-debt crisis. Private student loans would no longer be exempt from protections when borrowers file for bankruptcy under a bill introduced in the U.S. Senate. The effort, sponsored by Sen. Richard Durbin of Illinois and signed by 12 other senators, comes as the White House and lawmakers are working on multiple fronts to attack what is being called a student-debt crisis. Roughly 40 million Americans currently carry student-loan debt, starting out with an average bill of $29,000, according to the Consumer Finance Protection Bureau. Since 2005, people filing for bankruptcy protection haven’t been able to get student loans cleared. Before that, only government and secured loans were exempt. "Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family," Durbin said in a written statement. "It’s not only young people facing this crisis, it is parents, siblings, and even grandparents who co-signed private loans long ago and are still making payments decades later."

Comment of The Bankruptcy Law Firm, PC: The republican controlled senate has been reported as being strongly against allowing student loan debt to be discharged in bankruptcy. A bill being introduced does NOT insure that the bill will become a law.

Home-Equity Borrowers Face Higher Payments as Loans Reset


Owners of about 3.3 million U.S. homes face higher payments on home-equity lines of credit over the next four years as interest-only periods expire on loans originated during the bubble era, RealtyTrac reported.

Click here to read the full article

White House Floats Bankruptcy Process For Some Student Debt

March 12, 2015

The White House is weighing steps to make it easier for Americans to expunge certain student loans through bankruptcy, opening the door for student debt made by private lenders to be treated on par with credit-card debt and mortgages

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America's Skyrocketing Credit Card Debt

March 10, 2015
CBS Money Watch

The U.S. economy may be strengthening, but by one measure Americans are flunking the basics of personal finance.

Credit card debt is ballooning, leaving American households with a net increase of $57.1 billion in new credit card debt in 2014, according to a new survey from CardHub. The credit card comparison site said it's forecasting new credit card debt will rise 5 percent in 2015, reaching $60 billion this year.

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Obama Plans To Make It Easier To Pay Your Student Loans

March 10, 2015
Washington Post

President Obama signed a presidential memorandum Tuesday directing federal agencies to overhaul the way Americans repay their student loans.

The move is the latest in a series of steps the administration has taken to promote college access and affordability, including expanding a program that caps student loan payments to 10 percent of a person’s income for 20 years. It comes at a time when student debt has surpassed $1.3 trillion and the average graduate is leaving school with nearly $29,000 in education loans.

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Tips for Consumers about Credit Reports

March 9, 2015
BankNews e-newsletter

Tips for Consumers about Credit Reports:

  • You can get a free credit report from each of the 3 major credit reporting agencies ("CRAs")--Experian, Equifax, Transunion--once each year.
  • To get your free report, visit or call (877)-322-8228.
  • You can request all three credit reports at the same time, or you can request the reports separately. Spreading out the reports permits you to monitor your credit over the course of the year.
  • It is important to review your credit report regularly in order to check for errors.
  • If you find an error, you have the right to dispute the error with the CRA and with the company that provided the information.
  • You have the right to submit copies of documents that support your dispute. You may submit such documents to the CRAs online via the CRAs’ websites.
  • Watch out for websites that claim to offer “free” credit reports, but require you to subscribe to their fee-based services in order to obtain the credit report.

Hospitals Likely to See More Bad Debt if Subsidies Go Away

March 3, 2015
Winston-Salem Journal

Not-for-profit hospitals are likely to experience an increase in bad debt costs if the U.S Supreme Court declares illegal federal insurance premium subsidies, according to a Moody’s Investors Services report released Tuesday.

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Stockton Plans to Exit Bankruptcy Today

February 25, 2015
ABI Newsletter

The city of Stockton, Calif., will leave bankruptcy protection today, bringing to a close years of cost-cutting efforts that affected bondholders, taxpayers and its retired employees, Dow Jones Daily Bankruptcy Review reported today. Stockton City manager Kurt Wilson said that the milestone will enable the city, which was hit hard by the housing crash, to move "forward toward recovery." The city, located about 80 miles inland from San Francisco, is getting out of bankruptcy after more than two years. During the case, voters approved a new 3/4-cent sales tax increase to pay for more police officers, while more than 1,000 workers and retirees who had $538 million in claims against the city also agreed to accept one-time payments worth $5.1 million instead. Bankruptcy Judge Christopher Klein approved the city's reorganization plan in October.

As reported in American Bankruptcy Institute 2/25/15 e-newsletter

TransUnion: Credit Card Balances Reach Highest Levels Since 2008; Delinquency Rate Remains Stable

February 23, 2015
Yahoo! Finance

The latest TransUnion Industry Insights Report found that the credit card delinquency rate remained steady in Q4 relative to the same period in 2013, and total outstanding credit card balances increased 5% on a yearly basis. The increase indicates record growth, the highest yearly growth observed since 2008.

Click here to read the full article

Americans Borrowing More, but Fissures Appear

February 17, 2015
Wall Street Journal

Americans are for the most part taking on new loans carefully, yet a rise in late payments on two fast-growing types of debt—auto and student loans—suggest some consumers could be getting in over their heads.

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CCN Factoid: 35% of US Consumers With Credit Have At Least 1 Account In Collections

February 11, 2015
Credit & Collection E-newsletter

A joint study conducted last year by the Urban Institute and Encore Capital Group's Consumer Credit Research Institute showed that about 77 million Americans currently have a debt in collections, which amounts to 35% of consumers with credit files or data reported to a major credit bureau. Researchers noted that the situation is basically unchanged from 2004, when the Federal Reserve studied the issue and found that 36.5% of people with credit reports had debts in collection.

S&P Ends Legal Woes Paying $1.5 Billion Fine to U.S., States

February 3, 2015
Bloomberg Business

Standard & Poor’s $1.5 billion settlement today will let the world’s biggest ratings company move beyond a bruising legal battle over the top grades it gave to subprime-mortgage bonds, though at a more painful price than those paid by big banks that assembled those securities.

Click here to read the full article

Delinquency Rates for Auto Loans Hit Highest Level Since 2008

January 28, 2015
International Committee of the Fourth International (ICFI)

The rate of missed payments for auto loans has reached the highest level since 2008, showing the effect of the stagnation of workers’ incomes and the increasing prevalence of predatory practices by banks and auto lenders.

Click here to read the full article

FTC Reaches Historic Settlement with Payday Lenders

January 19, 2015
Payments ®

On Friday (Jan. 16) in the United States District Court in Nevada, the Federal Trade Commission reached a $21 million settlement with two payday lending companies in the largest payday loan settlement in history for deceptive lending practices and providing deceptive information to customers.

Click here to read the full article

Examples of Large Corporations Filing Bankruptcy, So Rar, in 2015, as Reported in Press:

January 15, 2015
ABI Newsletter

Casino giant Caesars Entertainment Corp. placed its largest unit under Chapter 11 bankruptcy protection in Chicago Thursday, leaving it to a judge to settle the bitter dispute among the company’s creditors and the investment firms whose buyout left the unit with $18.4 billion in debt.

RadioShack Corp. is preparing to file for bankruptcy protection as early as next month following a sputtering turnaround effort that left the electronics chain short on cash.

Caesars Unit Files Chapter 11 Bankruptcy to Cut $18.4 Billion in Debt, Faces Creditor Fight

January 15, 2015
Associated Press

A cash-strapped division of casino giant Caesars Entertainment Corp. filed for bankruptcy protection Thursday in Chicago, hoping the court agrees to its plan to get out from under $18.4 billion in debt.

Click here to read the full article

RadioShack Prepares to File for Bankruptcy: WSJ

January 14, 2015

Electronics retailer RadioShack Corp (RSH.N) might prepare to file for bankruptcy protection by next month, the Wall Street Journal reported citing people familiar with the matter.

Click here to read the full article

Founder Of Consolidated Credit Counseling Services Reportedly Tied To Payday Lenders

January 13, 2015

If you’re in dire financial straits because you thought you could take out a 275% APR payday loan only to find yourself unable to repay, do you want credit counseling advice from someone with a financial interest in the success of payday lenders? Probably not, but the founder of Consolidated Credit Counseling Services, Inc. says that his investments in the payday loan business had no bearing on his work.

Click here to read the full article

Closer Look at Delinquency Surge and Much More

January 12 2015
Mortgage News Daily

In its "first look" at November mortgage data last week Black Knight Financial Services noted a significant surge in mortgage delinquencies compared to the previous month. The 11.8 percent jump in mortgages that were 30 or more days past due brought the national delinquency rate to 6.08 percent, the first time since February it had surpassed 6.0 percent, and was the largest month-over-month increase since 2008, a spike that also occurred in November.

Click here to read the full article

Architecture Firm That Restored Statue of Liberty Seeks Bankruptcy

January 12, 2015
ABI Newsletter

A New York architecture and interior-design firm with roots dating back more than a century has filed for chapter 11 protection, citing its inability to collect more than $2 million from an assignment in Russia, the Wall Street Journal reported today. Unlike many companies that go into bankruptcy, Swanke Hayden Connell doesn’t have any major bank loans or other secured debt. Instead, the firm says in court filings that a shortage of cash and its inability to pay its bills led to the bankruptcy. Over the years, Swanke Hayden has worked on a number of well-known projects in New York and elsewhere, including the Trump Tower, a 1980s facelift of the Statue of Liberty, and the recent rehabilitation of Central Park restaurant Tavern on the Green. In recent years, Swanke Hayden has taken on several projects in Russia, including a 70-story mixed-use tower in Moscow and a planned mega-complex in downtown Moscow. Swanke Hayden says in filings that one of its Russia clients hasn’t paid $2.3 million due to the firm because it claims "it has suffered damages as a result of the debtor’s alleged delays and omissions."

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