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

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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June  22, 2017

ABI Bankruptcy Brief

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.
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Puerto Rico Grapples with Foreclosure Crisis as Thousands Lose Homes

An average of 14 families lose their homes every day to foreclosure in Puerto Rico, more than double the rate a decade ago as the island faces a real estate crash worse than the one that sparked the Great Recession on the U.S. mainland, the Associated Press reported yesterday. Families across Puerto Rico are moving in with relatives, becoming homeless or simply fleeing to the U.S. mainland with destroyed credit records as the island's government struggles to restructure a portion of its $73 billion public debt and help the economy emerge from a decade-long recession. In this U.S. territory of 3.4 million people, local courts oversaw foreclosures on nearly 33,000 homes from 2009-16, according to government statistics. A record 5,424 homes were foreclosed last year, up 130 percent from nearly a decade ago, when the government first began tracking those numbers. However, the actual number of foreclosures is much higher because the statistics do not include an estimated 20,000 loans in default or close to default that local banks have sold to companies outside Puerto Rico since 2009. Those cases are largely handled in federal court, and no one compiles statistics on them.
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For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Fed Reports Delinquency Transition Rates Are Low — Except for Student Loans

A Federal Reserve Bank of New York report found that consumers’ transition rate into serious delinquency for all loan types except student debt is low, reported on Tuesday. “Flows into serious delinquency for all loan types except student loans peaked during the Great Recession and are currently low or very low on a historical basis,” according to the report. Auto loan transitions into delinquency have been on the rise since 2012, however, and there has been a recent uptick in credit card transitions, according to the report. Overall, as of March 31, 4.8 percent of outstanding debt was at some level of delinquency, ACA International previously reported. According to the Fed’s Quarterly Report on Household Debt and Credit, 11 percent of aggregate student loan debt was 90 or more days delinquent or in default in the first quarter.
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Latest ABI Podcast Examines Potential Effects on Debt Collectors and Consumers Stemming from the Supreme Court's Decision in Henson v. Santander

ABI Editor-at-Large Bill Rochelle talks with consumer law scholar Prof. Jeff Sovern of St. John's University School of Law and consumer bankruptcy attorney John R. Bollinger of the Boleman Law Firm about the Supreme Court's June 12 opinion in Henson v. Santander Consumer (No. 16-349). As the Court has ruled that a debt collector who purchases a debt for its own account is not a debt collector covered by the FDCPA, Prof. Sovern and Bollinger examine the potential effects that the decision will have on both debt collectors and consumers.
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Participate at Next Consumer Commission Meeting on July 15 at NACTT

The ABI Commission on Consumer Bankruptcy welcomes you to participate at its next open meeting on July 15 at the NACTT Annual Meeting in Seattle (Sheraton Seattle Hotel). The meeting will be held from 4:00 to 5:30 p.m. PT and is a field hearing for the Chapter 13 Committee. Major topics for consideration by the Committee include (a) chapter 13 eligibility, (b) homeowner issues, (c) chapter 13 plans, (d) credit reporting, (e) local legal culture and (f) after-acquired property. For more information, go to To request a time for a public statement or to submit a written statement, email the Commission at

For more information on the Commission, including oral and written statements from the May 6 meeting, please click here.

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New on ABI’s Bankruptcy Blog Exchange: Debt Collection by the Veterans Administration Is a Nightmare for Vets

The scandal involving the hospitals and medical clinics operated by the U.S. Department of Veteran Affairs has been heavily reported on over the last few years, but another significant malfeasance by the VA concerns the department’s efforts to collect monies back from veterans for overpayments, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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