COMMENTARY: THE RIPPLE EFFECTS OF RISING STUDENT DEBT
A collection of studies shows that the burden of student debt may well cause people to defer economic decisions than they would otherwise make -- affecting not just individual lives but also the entire economy, according to a commentary in Saturday's New York Times. A new study has found that areas with higher relative growth in student debt show lower growth in the formation of small businesses (in this case, firms with one to four employees). People normally have only a certain amount of "debt capacity," said Brent W. Ambrose, a professor of risk management at Pennsylvania State University and a co-author of a preliminary paper on the research, along with Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia. When students use up their debt capacity on student loans, they can't commit it elsewhere. "Given the importance of an entrepreneur's personal debt capacity in financing a start-up business, student loan debt, which cannot be discharged via bankruptcy, can have lasting effects later in life and may impact the ability of future small-business owners to raise capital," the study says. Considering that 60 percent of jobs are created by small business, "if you shut down the ability to create new businesses, you're going to harm the economy," Prof. Ambrose said. Student loan debt also appears to be affecting homeownership trends. According to research by the Federal Reserve Bank of New York, fewer 30-year-olds in general have bought homes since the recession, but the decline has been steeper for people with a history of student loan debt and has continued even as the housing market has been recovering. Read the full commentary.
To hear New York Fed economist Meta Brown, be sure to attend Friday's Student Loan Debt Symposium at Georgetown University Law Center, featuring scholars, consumers, practitioners and policymakers examining the student debt crisis and its possible solutions.
CFPB CITES PROBLEMS AMONG PAYDAY LENDERS, DEBT COLLECTORS
The Consumer Financial Protection Bureau (CFPB) says that it has privately reprimanded several short-term lenders for making abusive calls to consumers, improperly disclosing personal information and making false threats, the Wall Street Journal reported on Friday. The CFPB said in a report on Thursday that its examiners have found numerous instances in which short-term "payday" lenders and debt collectors have been breaking federal consumer-protection laws. Several companies in the payday loan, debt collection and credit-reporting industries had "systemic flaws," such as the failure to put a system in place for responding to consumers' complaints, the CFPB said. The report further singled out short-term "payday" lenders for criticism, saying that examiners found such lenders deceived consumers by making false threats of legal action to delinquent borrowers and offering nonexistent promotions to entice them to return calls. Read more. (Subscription required.)
LOAN SCHEME DELIVERS BLOW TO SMALL BUSINESSES
"Advance-fee loan schemes," in which self-described loan brokers demand upfront payments for loans that never materialize, have intensified since the financial crisis as a result of banks tightening their lending standards, making it more difficult for small businesses to obtain financing in a traditional way, the Wall Street Journal reported today. In 2013, there were a record 53,833 complaints about advance-fee loans and credit arrangers filed by entrepreneurs and consumers to the Federal Trade Commission, up from 43,070 in 2012 and 44,504 in 2011, according to the government agency. Most of the complaints have to do with loans that never arrived despite the payment of upfront fees, according to a Wall Street Journal review of the FTC data. Read more. (Subscription required.)
ANALYSIS: MICHIGAN LOCALITIES LOOK TO SUBVERT DETROIT PLAN TO PROFIT ON WATER
As Detroit seeks to settle its debts and chart a viable course for its future, one of its best sources of revenue, clean water, may be evaporating, the New York Times reported yesterday. The fresh water in Lake Huron is still plentiful, but customers are having second thoughts about Detroit and its vast, aging water system. Detroit pipes much of its water from the lake, and Detroit Water and Sewerage, the city's water department, sells it wholesale across southeastern Michigan, generating about two-thirds of the city's water revenue. But this year, Detroit is losing its second-biggest customer, the City of Flint, which has joined with surrounding Genesee County to build a $300 million, 63-mile pipeline parallel to an existing one to bring water directly from Lake Huron, cutting out Detroit. Two other counties have joined Genesee and Flint's efforts to break away. Separately, Detroit remains in talks with three other counties to reorganize its water system as a regional enterprise, a crucial element of its plan to exit bankruptcy. Some local officials outside of Detroit worry that joining with Detroit in a regional business venture will bring a toxic exposure to Detroit's fiscal ailments. The city's tax base is severely eroded, and even though much of its debt will likely be restructured in bankruptcy, people outside the city limits are not eager to help foot whatever bills may remain through new regional projects, taxes and fees. Wealthy communities are not the only leery ones. Many in distressed Flint, about 70 miles away, suspect that Detroit is overcharging them for water, although outside consultants say that the rates charged by Detroit reflect national medians. Read more.
NEW BANKRUPTCY FILING FEE INCREASES EFFECTIVE JUNE 1
The Judicial Conference of the United States has approved several bankruptcy-related fee increases to take effect starting June 1. Based on the chapter, the cost to file will be:
- Chapter 7: $335
- Chapter 13: $310
- Chapter 9, 11 and 15: $1,717
- Chapter 12: $275
The fee schedule changes are projected to raise about $35 million per year for the courts, based on current case loads. For more information, please click here.
NEW CASE SUMMARY ON VOLO: BRANCH BANKING & TRUST CO. V. CONSTRUCTION SUPERVISION SERVICES INC. (IN RE CONSTRUCTION SUPERVISION SERVICES INC.; 4TH CIR.)
Summarized by Elizabeth Gunn of Sands Anderson PC
The Fourth Circuit ruled that an unperfected subcontractors lien is an interest in property as of the petition date for §§ 362(b)(3) and 546(b) purposes despite not having served notice of (i.e. perfected) such lien under a state law pre-petition. Subcontractors are qualified under § 362(b)(3) exception to the automatic stay to perfect such liens post-petition.
There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: CURING MORTGAGE ARREARS IN CHAPTER 13
A recent blog post examines curing mortgage arrears within a chapter 13 proceeding.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll
Enforcing pari passu clauses in favor of holdout bondholders by injunction against Argentina will undermine sovereign debt restructurings (NML Capital, Ltd. v. Republic of Argentina).
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