Category Archives: Bankruptcy News

‘Undue Hardship’ Is Too Strict A Standard To Discharge Student Loans In Bankruptcy, ABA Argues

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The House of Delegates passed a resolution at the ABA Hybrid Annual Meeting on Tuesday urging Congress to amend the U.S. Bankruptcy Code to allow borrowers to discharge student loans without proving that repayment of the debt imposes an “undue hardship” on them or their dependents.

In introducing Resolution 512, Christopher Jennison, the Maryland State Bar Association delegate and Young Lawyers Division assembly speaker, said that “student debt is a real and present crisis.”

He pointed out that the Young Lawyers Division brought a previous resolution to the midyear meeting in February that urges Congress and the Executive Branch to develop and implement programs to help law students and graduates who are experiencing financial hardship because of their loan obligations. He told the House, which approved the resolution, to consider this measure as the next logical step.

“While there are other policy solutions to address the underlying cause of high student debt and the high cost of legal education, it is imperative to create a lifeline” for those lawyers who are now facing insurmountable student loan debt, Jennison said.

In 2019, more than 44 million borrowers owed more than $1.5 trillion in student loan debt, according to data from the Federal Reserve cited in the report accompanying the resolution. It was the second-highest consumer debt category, behind only mortgages.

Student loans were treated differently from other dischargeable debt after Congress passed the Education Amendments Act of 1976, which prohibited borrowers from discharging these types of loans in bankruptcy for the first five years of their repayment unless they could establish undue hardship.

The Student Loan Default Prevention Initiative Act of 1990 extended the student loan discharge exception to seven years and the Higher Education Amendments Act of 1998 amended the Bankruptcy Code so that federally guaranteed student loans could not be discharged at all unless the borrower could prove undue hardship.

Interpretation of what constitutes an undue hardship has fallen to the federal courts, which have disagreed over what borrowers must do to prove they meet this threshold, the report accompanying the resolution says. In addition to other factors, most courts have said borrowers must prove they cannot maintain a minimal standard of living for themselves or their dependents if they repay their student loans.

In also supporting the resolution, Aaron Sohaski, director of student loan debt and financial wellness for the Young Lawyers Division, said that even though it is not impossible to discharge student loan debt in bankruptcy, the process imposes an unnecessary challenge for lawyers with significant amounts of debt.

“Like anyone faced with a personal decision to file for bankruptcy, lawyers choose this option as a last resort and the undue hardship threshold makes this difficult task even harder,” Sohaski said. “Many student borrowers recognize they won’t be able to find success and, therefore, they won’t even try.”

Several legislators have sought to address this issue in recent years. Sen. Dick Durbin, a Democrat from Illinois, and Rep. Jerrold Nadler, a Democrat from New York, introduced the Student Borrower Bankruptcy Relief Act of 2019. Rep. John Katko, a Republican from New York, introduced the Discharge Student Loans in Bankruptcy Act of 2019. Both failed to pass, however.

In early August, Durbin and Republican Sen. John Cornyn of Texas introduced the Fresh Start Through Bankruptcy Act of 2021. The bipartisan bill would allow federal student loans to be discharged without an undue-hardship showing once borrowers have been in repayment for at least 10 years.

Resolution 512 was co-sponsored by the Young Lawyers Division, Law Student Division and Standing Committee on Paralegals. They proposed an earlier version at the midyear meeting in February but withdrew it from consideration.

Individual Bankruptcy Filings Fall During Pandemic

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The number of people seeking bankruptcy fell sharply during the pandemic as government aid propped up income and staved off housing and student-loan obligations.

Bankruptcy filings by consumers under chapter 7 were down 22% last year compared with 2019, while individual filings under chapter 13 fell 46%, according to Epiq data. After holding above 50,000 filings a month in 2019 and in the first quarter of 2020, bankruptcy filings have remained below 40,000 a month since last March when the pandemic hit.

By contrast, The Wall Street Journal reports, commercial bankruptcy filings rose 29%, with more than 7,100 businesses seeking chapter 11 protection last year, according to Epiq.

The downward trend in personal bankruptcies bucks predictions by analysts and economists that disruptions from COVID-19 lockdowns and restrictions early in the pandemic would lead to a sharp increase in filings.

Economists and bankruptcy lawyers say federal suspensions of evictions, home foreclosures and student loan obligations have helped limit bankruptcies—though they worry bankruptcy rates could increase after aid ends. Household spending also dropped as people stayed home, canceled travel and socially distanced to avoid the coronavirus. Several rounds of government aid padded incomes with direct payments to households and enhanced unemployment benefits. The personal saving rate rose. Read the full story. 

New York’s Historic Down Town Association Files for Bankruptcy

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(Bloomberg) — The Down Town Association, the oldest social club in lower Manhattan and a former haven for New York and national power brokers, has filed for bankruptcy.

The not-for-profit corporation, founded in 1859, has less than $75,000 in cash and property to cover $6.9 million in debt, most of which is owed to landlord Great Empire Realty, according to its bankruptcy petition filed Thursday in New York. It’s seeking to reorganize under Chapter 11 protection using rules usually reserved for small businesses.

Set in the shadow of the city’s financial district, the club’s location at 60 Pine Street dates from 1887 and is on a list of historic New York landmarks.

The club bills itself as “an island of quiet civility” and a “locus for nourishment, entertainment, relaxation or quiet discourse.” Rules bar jeans, sneakers and cell phones from the public spaces. To make a call, members can either get a private room or use phone booths.

Member Discounts

In 2018, investor Benny Fong’s Great Empire paid $28.3 million for the building with plans to lease the property back to the club, according to New York trade publication The Real Deal.

To attract members in recent years, the club resorted to offering discounts on nearby parking and shopping, including 15% off at Brooks Brothers, the mens clothier that also was forced into bankruptcy after a history of serving Wall Street titans. Among the assets listed in court papers were two billiard tables, 18 portraits of presidents and treasurers and an elk’s head.

The list of creditors include about a dozen employees who are owed severance wages. A call seeking comment from the association’s Long Island-based bankruptcy lawyer wasn’t returned.

January 2021 Bankruptcy Filings Continue Historic Slide

NEW YORK, Feb. 04, 2021 (GLOBE NEWSWIRE) — Epiq, a global technology-enabled services leader to the legal services industry and corporations, released its January 2021 bankruptcy filing statistics from its AACER bankruptcy information services business. January experienced the lowest monthly number of new bankruptcy filings across all chapters since February 2006 (26,617 filings) with only 32,298 filings. The continued slide represents a decrease of 6% over December 2020 filings, and a 44% decrease over January 2020 filings where there were 58,161 new cases. Commercial filings across all chapters fell to 2,124 new cases, a 7% drop over December 2020 and a 42% drop over January 2020, which had a total of 3,560 new cases.

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“Out of court solutions, available liquidity, and general uncertainty has caused a significant pause in Chapter 11 filings this past month,” said Deirdre O’Connor, senior managing director of corporate restructuring at Epiq. “We appear to be suspended in an air bubble at the moment.”

“The new year data continues to show extreme softness in new U.S. bankruptcy filings,” said Chris Kruse, senior vice president of Epiq AACER. “The optimism around a new political administration and potential new government relief for consumers has kept new filings historically low.”

Chapter 13 non-commercial filings are down 4% over last month with only 8,972 new cases. Chapter 7 non-commercial filings are also down 6.5% in January 2021 with only 21,225 new cases. With unemployment rates in December holding steady at 6.7%, pressure on consumers has stabilized and renewed confidence on stimulus aid is rising.

“We continue to expect new filings will grow substantially in the second-half of 2021, notwithstanding any likely short-term stimulus,” said Kruse.

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About Epiq
Epiq, a global technology-enabled services leader to the legal services industry and corporations, takes on large-scale, increasingly complex tasks for corporate counsel, law firms, and business professionals with efficiency, clarity, and confidence. Clients rely on Epiq to streamline the administration of business operations, class action and mass tort, court reporting, eDiscovery, regulatory, compliance, restructuring, and bankruptcy matters. Epiq subject-matter experts and technologies create efficiency through expertise and deliver confidence to high-performing clients around the world. Learn more at https://www.epiqglobal.com.

The number of US bankruptcies passes the 500-mark as coronavirus takes toll

Corporate bankruptcies in the U.S. continue to grow amid the coronavirus pandemic as 22 new companies added their names to a growing list of bankruptcies in 2020 in the last two weeks, an S&P Global Market Intelligence analysis shows.

A total of 509 companies have gone bankrupt this year as of Oct. 4, exceeding the number of filings during any comparable period since 2010.

S&P Global Market Intelligence’s bankruptcy analysis includes public companies or private companies with public debt. Public companies included in the list of companies with public debt must have at least $2 million in either assets or liabilities at the time of the bankruptcy filing. In comparison, private companies must include at least $10 million.

Companies that entered bankruptcy proceedings between Sept. 21 and Oct. 4 include i ndependent oil and gas producer Oasis Petroleum Inc., Bouchard Transportation Co. Inc. , which operates a fleet of barges and tugs, oilfield services company FTS International Inc., film distribution company Aviron Pictures LLC, oil and gas company Lonestar Resources US Inc. and King Mountain Tobacco Company Inc., which makes cigarettes. Only three companies — Northwest Regional ASC LLC, Reata Properties LP and Continuity Logic LLC — had involuntary petitions filed against them during the period.

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Oasis, which filed a Chapter 11 petition on Sept. 30, was the only company that claimed more than $1 billion in liabilities in its bankruptcy filing during the period. The company signed a restructuring support agreement with all of the lenders in its revolving credit line and holders of 52% of its bonds on a prepackaged restructuring plan through which it aims to cut its debt by $1.8 billion.

Texas-based Lonestar on Sept. 30 filed for Chapter 11 protection, listing $560 million in total assets and $626.2 million in total liabilities.

Meanwhile, 54 companies went bankrupt in September, matching the number of filings in August.