Durbin Urges Private Student Loans Be Discharged in Bankruptcy

Durbin Urges Private Student Loans Be Discharged in Bankruptcy

ABI Bankruptcy Brief | March 20, 2012
 
  
March 20, 2012
 
home  |  chart of the day  |  blogs  |  bankruptcy code and rules  |  statistics  |  legislative news  |  volo
  NEWS AND ANALYSIS   

DURBIN URGES PRIVATE STUDENT LOANS BE DISCHARGED IN BANKRUPTCY

Sen. Dick Durbin (D-Ill.) today said that students who take out loans from private lenders to finance their education should have the same right to discharge their debt in bankruptcy that other borrowers enjoy, Bloomberg News reported. "While the overall growth in student indebtedness is troubling, the most pressing concern is private student loans," Durbin said at a Senate Judiciary Subcommittee on Administrative Oversight and the Courts hearing. "These private student loans are a far riskier way to pay for an education than federal loans." Outstanding student-loan debt reached an estimated $867 billion in the fourth quarter, and is greater than total U.S. credit-card debt. However, Prof. G. Marcus Cole, a bankruptcy professor at Stanford Law School, cautioned against amending the Bankruptcy Code to allow for the discharge of private student loans. "The removal of the exemption from discharge of privately placed student loans will result in a dramatic increase in the cost of student loans for all student borrowers, ultimately 'drying up' the availability of such loans for those who need them most," Prof. Cole said in prepared testimony. (Click here to read Prof. Cole's testimony.) Durbin introduced a bill in May to eliminate a 2005 provision that made privately issued student loans nondischargable in bankruptcy. Read more.

Click here to read all of the prepared testimony from today's Senate Judiciary Subcommittee on Administrative Oversight and the Courts hearing titled, "The Looming Student Debt Crisis: Providing Fairness for Struggling Students."

REGULATORS APPROVE NEW DERIVATIVES RULES

Regulators approved new rules for the $600 trillion derivatives market today, aiming to raise competition and impose more rigorous risk management on an industry that played a central role in the financial crisis, the New York Times' DealBook blog reported today. The Commodity Futures Trading Commission (CFTC) adopted the rules in a 4-to-1 vote, the agency’s latest move to usher in broad new changes in response to the crisis. "Though it is quite technical, and some might say it's sort of into the plumbing of the derivatives marketplace, these rules today are critical to promote access, lower risk, and ultimately help in transparency in the market," said CFTC chairman Gary Gensler. He highlighted how the rules would mandate broader competition in the derivatives industry, which is currently dominated by a few big banks. JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs currently hold roughly 95 percent of the banking industry's total exposure to derivatives contracts, according to government data. Now banks will be unable to restrict customers from trading with other players in the derivatives market. Read more.

ANALYSIS: CALIFORNIA CITIES SCRAMBLE TO AVERT INSOLVENCY

If Stockton, Calif., were to go bankrupt, it would be the largest U.S. city ever to do so, and other troubled Californian municipalities might be tempted to follow suit, Reuters reported yesterday. While predictions of mass defaults on municipal bonds might start to look a little more realistic, a closer look at the municipal finance situation across California suggests that mass bankruptcies are unlikely. Most troubled local governments in the state have taken drastic steps to cut spending, with city managers asserting they have their arms around the problems. A new state-mandated mediation process may also help municipalities avoid the worst - though it could force bondholders to accept losses outside the bankruptcy process. The new law, passed after the San Francisco Bay area city of Vallejo filed for bankruptcy in 2008, requires Stockton to try to corral its major bondholders, bond insurers, city employees and retirees into mediation for up to 90 days. The new California law mandating mediation came after the Vallejo situation exposed the weaknesses of bankruptcy as a means to address municipal finance problems. City services there have been eviscerated, many employees lost much of their health care and other benefits, and legal bills have topped $10 million. Yet many of Vallejo's largest long-term costs, namely pension liabilities, remain in place, and the hit to the city's reputation has further depressed its housing market and discouraged businesses from opening. Mediation could enable cities to get some debt relief without the stigma and costs of bankruptcy. Read more.

FEDERAL RESERVE PLANS TO FINE EIGHT MORE BANKS FOR FORECLOSURE VIOLATIONS

The Federal Reserve will fine eight more banks that have been subject to scrutiny amid allegations of improper foreclosure practices, adding to the list of the nation's five largest mortgage servicing firms penalized last month, the Wall Street Journal reported today. Federal and state officials last month announced a $25 billion settlement of foreclosure-abuse allegations with the nation's five largest mortgage servicing firms: Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co., Citigroup Inc. and Ally Financial Inc. As part of the state-federal settlement, the Fed announced $766.5 million in fines against the five large banks. The eight additional institutions to be receiving undisclosed fines are HSBC Holdings PLC’s U.S. bank division, SunTrust Banks Inc., MetLife Inc., U.S. Bancorp, PNC Financial Services Group Inc., EverBank, OneWest Bank and Goldman Sachs Group Inc. Goldman sold its Litton Loan Servicing unit last fall to Ocwen Financial Corp. Read more. (Subscription required.)

U.S. MAKES $25 BILLION ON SALE OF MORTGAGE-BACKED SECURITIES

The Obama administration announced yesterday that taxpayers made $25 billion in profit on a program to keep mortgage interest rates down in the wake of the 2008 meltdown in financial markets, the Washington Post reported today. Building on efforts that began under President Bush, the Obama administration took a number of steps to keep the mortgage market operating after the real estate market crashed, including providing unlimited financial support to mortgage-finance giants Fannie Mae and Freddie Mac and buying $225 billion in securities backed by mortgage loans. The Federal Reserve launched a much larger and significant program, and now owns about $846 billion in mortgage-backed securities. Treasury began to wind down its portfolio in March 2011 after concluding that its mortgage purchase program was no longer necessary. Read more.

MAKE SURE TO REGISTER FOR THE ABI "HOT TOPICS IN CONFIRMATION" LIVE WEBCAST ON APRIL 3 PROVIDED BY WEST LEGALEDCENTER - 1.5 CLE CREDITS AVAILABLE!

ABI's "Hot Topics in Confirmation" live webcast on April 3 at 11 a.m. ET will discuss applying section 1129(a)(10) to a joint chapter 11 plan for multiple debtors, credit-bidding before the Supreme Court, equitable disallowance of claims and the gifting doctrine after DBSD North America. Those purchasing the live webcast, provided through West LegalEdCenter, will receive complimentary access to the on-demand version for 180 days once it becomes available. Please note that the on-demand and podcast versions may or may not be accredited in your state. Click here to register.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: REYES V. BURER (IN RE BURER; 6TH CIR.)

Summarized by former ABI Resident Scholar Prof. Laura Bartell of Wayne State University Law School

The Sixth Circuit ruled that the bankruptcy court abused its discretion in dismissing a complaint to determine dischargeability of debt "with prejudice" when the motion to dismiss sought dismissal "without prejudice."

More than 400 appellate opinions are summarized on Volo. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: EXAMINATION OF THE MADOFF TRUSTEE'S $162 MILLION SETTLEMENT WITH NEW YORK METS' OWNERS

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines the $162 million settlement to end the case brought by Irving Picard, the trustee overseeing the Bernard Madoff bankruptcy liquidation proceeding, against the owners of the NY Mets, Saul Katz and Fred Wilpon.

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
Who will win the NCAA basketball championship? Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

  

 

NEXT EVENTS

 


April 3, 2012
Register Today!

 

ASM 2012
April 19-22, 2012
Register Today!

 

COMING UP

 

NYCBC 2012
May 9, 2012
Register Today!

 

ABI_TMA_LS12
May 15-18, 2012
Register Today!

 

MEMPHIS 12
June 1, 2012
Register Today!

 

CS 2012
June 7-10, 2012
Register Today!

 

CS 2012
July 12-15, 2012
Register Today!

 

CS 2012
July 25-28, 2012
Register Today!

 
   
  CALENDAR OF EVENTS

April
- "Hot Topics in Confirmation" West LegalEdcenter Webinar
     April 3, 2012
- Annual Spring Meeting
     April 19-22, 2012 | Washington, D.C.

May
- New York City Bankruptcy Conference
     May 9, 2012 | New York, N.Y.
  


June
- Memphis Consumer Bankruptcy Conference
     June 1, 2012 | Memphis, Tenn.
- Central States Bankruptcy Workshop
     June 7-10, 2012 | Traverse City, Mich.

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 12-15, 2012 | Bretton Woods, N.H.
- Southeast Bankruptcy Workshop
     July 25-28, 2012 | Amelia Island, Fla.

 
 
ABI BookstoreABI Endowment Fund ABI Endowment Fund