Total May Commercial Bankruptcy Filings Increase 32 Percent and Commercial Chapter 11s Climb 22 Percent

Total U.S. commercial bankruptcy filings increased 32 percent in May 2016 over May of last year, according to data provided by Epiq Systems, Inc. Commercial filings totaled 3,358 in May 2016, up from the May 2015 total of 2,550. May is the seventh consecutive month with a year-over-year increase in commercial filings. Total commercial chapter 11 filings also climbed in May 2016, as the 611 filings were 22 percent more than the 502 commercial chapter 11 filings registered in May 2015. However, total bankruptcy filings decreased 5 percent to 66,094 in May 2016, down from the May 2015 total of 69,338. Consumer filings were 62,736, dropping 6 percent from the May 2015 consumer filing total of 66,788. “Businesses, especially those within the energy and retail sectors, continue to turn to the financial fresh start of bankruptcy,” said ABI Executive Director Samuel J. Gerdano. “To better weather the rapidly evolving corporate and financial climate, ABI’s Commission to Study the Reform of Chapter 11 provided modernized tools to give struggling businesses a better chance to reorganize rather than liquidate.”

Puerto Rico Could Seek to Invalidate over $4 Billion in Debt

An audit report published today suggests that debt-laden Puerto Rico may be able to void some of its borrowing because politicians exceeded constitutional debt limits and their own authority, MarketWatch.com reported today. The report states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable. The scope of the audit report, issued by the island’s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by JPMorgan. Money for those debt payments is not in the commonwealth’s proposed budget, either. On Tuesday, Puerto Rico Governor Alejandro García Padilla sent a proposed 2016-17 budget to the island’s legislature that provides for only $209 million of the $1.4 billion of current debt-service cost.

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Study: The Average Student at a For-Profit College Was Worse Off After Attending

Millions of Americans enrolled in for-profit colleges in recent years to learn a trade and find decent-paying work, but a new study found devastating results for many of them in their careers, the Wall Street Journal reported yesterday. The working paper, published this week by the National Bureau of Economic Research, tracks 1.4 million students who left a for-profit school from 2006 through 2008. Because students at these schools tend to be older than recent high school graduates, they’ve spent time in the workforce. The researchers used Education Department and Internal Revenue Service data to track their earnings before and after they left school. The result: Students on average were worse off financially after attending for-profit schools. Undergraduates were less likely to be employed, and earned smaller paychecks – about $600 to $700 per year less – after leaving school compared to before attending. Those who enrolled in certificate programs made roughly $920 less per year in the six years after school compared to before they enrolled. Nearly 9 out of 10 for-profit school students took on student debt; those in associate’s programs borrowed an average $8,000, and those in bachelor’s programs, $13,000.

Analysis: Banks’ Embrace of Jumbo Mortgages Means Fewer Loans for Minorities

The biggest U.S. banks are tilting toward jumbo mortgages as they overhaul loan operations, but these loans could put banks at odds with another federal regulatory mandate — one that says lenders should serve a racially diverse set of customers, the Wall Street Journal reported today. As they approve relatively more jumbos, major banks are granting fewer mortgages to African-Americans and Hispanics than just before the crisis, a Wall Street Journal analysis found. The analysis looked at every mortgage approval reported to the federal government for home purchases in 2007 and 2014, the most recent available, including borrower race or ethnicity. In that period, each of the 10 biggest U.S. retail banks increased the share of its mortgage approvals that are jumbos. Jumbos, loans above $417,000 in most markets, are attractive because they typically feature high credit scores, big down payments and low default rates. And they aren’t linked to the government programs that cost banks tens of billions of dollars in fines related to the subprime-loan debacle. These loans predominantly go to white and Asian borrowers, the analysis showed. In 2014, 3.0 percent of the biggest banks’ jumbo borrowers were Hispanic and 1.3 percent were black.

Latest Podcast Explores the Large Role of Successor Liability in Bankruptcy Cases

ABI Resident Scholar Prof. Melissa Jacoby talks with Michael H. Reed, Special Counsel to Pepper Hamilton LLP (Philadelphia, Pa.). An author of a number of articles on successor liability and a contributor to ABI's forthcoming title examining environmental issues in bankruptcy, Reed discusses important issues and trends related to successor liability in chapter 11.

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