COMMENTARY: WILL PUERTO RICO'S NEW BANKRUPTCY LAW WITHSTAND CONSTITUTIONAL CHALLENGE?
Despite claiming to be modeled on the U.S. Bankruptcy Code, the Puerto Rico Corporations Debt Enforcement & Recovery Act (the Act) lacks some of the key protections that creditors have come to expect when dealing with the U.S. system, according to a New York Law Journal commentary yesterday. On June 28, 2014, Puerto Rico's Gov. Alejandro Garcia Padilla signed the Act into law. It permits certain public corporations in Puerto Rico to restructure their debt obligations. Within 24 hours, mutual funds investing in Puerto Rico's Power Revenue bonds issued by the Puerto Rico Electric Power Authority (PREPA) challenged the constitutionality of the Act, while rating agencies downgraded PREPA Bonds, sparking numerous reports of PREPA's imminent filing. It is uncertain whether the Act will survive the constitutional challenge or how soon the Act will be invoked by Puerto Rico's public corporations. Puerto Rico has been experiencing a financial crisis for at least the last six years. With its population shrinking, unemployment increasing and economy contracting, Puerto Rico has increasingly relied on the municipal bond market to fund its budget deficits. Puerto Rico's outstanding debt, including the debt of its public corporations, totals approximately $71 billion. As a result of this steady decline, rating agencies downgraded Puerto Rico bonds to non-investment grade in February 2014. Many of Puerto Rico's public services are provided by government-owned public corporations. Like Puerto Rico itself, these public corporations have increasingly relied on the bond market to cover their recurring budget deficits, but unlike the Commonwealth, the commentary said that PREPA and the other public corporations have issued bonds that are secured by the revenues they generate. Before the Act, Puerto Rico and its subdivisions, agencies and instrumentalities had no statutory authority, under any body of law, to seek relief from their creditors and/or restructure their debts. Click here to read the full commentary. (Subscription required.)
For further analysis of the Puerto Rico Corporations Debt Enforcement & Recovery Act and PREPA's situation, be sure to listen to this ABI Podcast.
MILLIONS OF AMERICANS' WAGES SEIZED OVER CREDIT CARD AND MEDICAL DEBT
One in 10 working Americans between the ages of 35 and 44 have their wages garnished, often over an old credit card debt, medical bill or student loan, NPR reported today. At the request of left-leaning investigative news operation ProPublica, ADP, the nation's largest payroll services provider, conducted a study of payroll records for 13 million employees. ADP's report, released Monday, shows that among employees in the prime working ages of 35 to 44 who had their wages garnished in 2013, roughly half owed child support. But a sizable number had their earnings docked for consumer debts, such as credit cards, medical bills and student loans. For workers earning $25,000 to $40,000 a year, more people were garnished for consumer debt than for child support. This marks a dramatic change. In the past, the vast majority of wage garnishments went to secure child support payments or to collect on unpaid taxes. In recent years, though, debt collectors have been filing millions of lawsuits against people for basic consumer debt: medical bills, student loans and credit card debt. Read more.
ANALYSIS: THE NEW RULES OF BORROWING MEAN LENDERS COMPETE FOR BEST CUSTOMERS
Rates on many consumer loans have come down this year as more lenders compete to win over borrowers, the Wall Street Journal reported yesterday. Large mortgages, known as jumbos, have carried lower average fixed interest rates than smaller home loans for five consecutive weeks through Sept. 5 — an anomaly and the longest such stretch for 30-year mortgages since at least 1986, according to mortgage-info data from website HSH.com. A new group of online lenders has entered the car-loan business, many offering zero to 2 percent fixed-interest rates on car loans. And for the first time ever, fixed-rate private student loans can be much cheaper than some popular federal student loans. The terms of most of these loans require consumers to have top credit scores. "If you have very good credit and you're able to [take] on debt, this is the time to borrow," says Joseph Pucella, a vice president and senior credit officer at Moody's Investors Service, a credit-ratings firm based in New York. "Rates are very low still and the banks are competing for that type of customer, so you've got more options." The deals are being offered as banks, hungry for revenue, try to drum up business. The loans are mostly targeted at borrowers with high credit scores, in most cases at least a 720 FICO score on a scale that runs from 300 to 850. Applicants often need to clear several additional hurdles, such as providing income documentation and maintaining a low overall debt load. Borrowers are jumping at the opportunity. Excluding home loans, $390.9 billion in consumer loans — including student loans, car loans and personal loans — was originated in the first five months of 2014, according to the latest data from credit-reporting firm Equifax. That is up 11 percent from the first five months of the year before and the highest for that period since 2007, when lending standards were looser. Read more. (Subscription required.)
COMMENTARY: STUDENT LOANS, MORAL HAZARD AND A LAW SCHOOL MESS
The current system of financing legal education creates moral hazard that has produced — and will continue to produce — law school misbehavior at great expense, according to a commentary by Prof. Steven J. Harper in Friday's American Lawyer. For the class of 2013, 33 of 201 ABA-accredited schools placed fewer than 40 percent of their graduates in long-term full-time J.D.-required employment (excluding law school-funded jobs). Thanks to the moral hazard that the federally backed loan program creates, some schools with the worst employment records for recent graduates have students with the highest levels of law school loan debt. For the class of 2013, three of the top 10 schools with the highest average student loan debt at graduation placed less than one-third of their graduates in full-time, long-term J.D.-required jobs (excluding law school-funded positions). Read the full commentary. (Subscription required.)
For more on student loans and bankruptcy, be sure to pick up a copy of Graduating withDebt: Student Loans under the Bankruptcy Code, available now in the ABI Bookstore.
FALL LINE-UP OF ABI COMMITTEE TELECONFERENCES ALLOW MEMBERS TO DISCUSS TOP ISSUES
Members are encouraged to dial-in and listen or participate on upcoming ABI Committee conference calls. While committee membership is encouraged, it is not required to join the free teleconferences. Upcoming Committee teleconferences include:
Business Reorganization Committee: Tuesday, September 23; 4 pm ET.
Topic: "We're Not in Kansas Anymore: Looking at International Insolvency/Restructurings through the Bankruptcy Code and Beyond"
Speakers: Patrick Mohan (Moderator) of Reorg Research (Columbia, S.C.), Rachel Ehrlich Albanese of Akin Gump Strauss Hauer & Feld LLP (New York), G. Eric Brunstad, Jr. of Dechert LLP (Hartford, Conn.), Nava Hazan of Squire Patton Boggs (New York), Mark Kronfeld of BlueMountain Capital Management, LLC (New York) and Stephen Lerner of Squire Patton Boggs (Cincinnati).
Members outside the U.S. can listen to the conversation online at: http://www.abiworld.org/webinars/2014/INSOL_RESTRUCTURINGS/live.html
Asset Sales Committee: Thursday, Oct. 2; 4 pm ET
Topic: Call to cover "the progeny of Fisker," as well as the practical implications of the decisions.
Speakers: Oscar Pinkas of Dentons (New York) and Justin Paget of Hunton & Williams LLP (Richmond, Va.)
Unsecured Trade Creditors Committee: Wednesday, Oct. 1; 4 pm ET
Topic: "Tricks of the Trade: New Issues and Strategies in Preference Cases"
Speakers: Mark Felger of Cozen O'Connor (Wilmington, Del.) and Travis Powers of Buchanan Ingersoll & Rooney PC (Buffalo, N.Y.)
All committee teleconferences will utilize the same dial-in information:
Call in: (712) 432-1500
Participant code: 692933
NEW CASE SUMMARY ON VOLO: RUPANJALI V. CHECK INTO CASH OF WASHINGTON INC. (9TH CIR.)
Summarized by David Hercher of Miller Nash LLP
The Ninth Circuit ruled that for an automatic stay violation the chapter 7 debtor was entitled to receive emotional distress damages, punitive damages, and attorney fees incurred to end the violation, but not fees incurred to recover damages.
There are nearly 1,500 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: SIXTH ANNIVERSARY OF THE BANKRUPTCY FILING OF LEHMAN BROTHERS
A recent post takes a look back at the bankruptcy filing by Lehman Brothers on Sept. 15, 2008, the largest chapter 11 filing in U.S. history.
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
SARE cases should not be allowed in chapter 11.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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