IRS Provides Tax Relief for Those with Discharged Student Loans

IRS Provides Tax Relief for Those with Discharged Student Loans

ABI Bankruptcy Brief

January 16, 2020

ABI Bankruptcy Brief

IRS Provides Tax Relief for Those with Discharged Student Loans

The IRS and Treasury Department released guidance yesterday that will allow more people with discharged student loans to receive tax relief, The Hill reported. Under the guidance, certain taxpayers with discharged student loans will not have to report the amount of the loan as gross income on their federal tax returns. The guidance applies to taxpayers whose federal loans were discharged by the Department of Education because they were attending a school that closed or because they established that "a school’s actions would give rise to a cause of action against the school under applicable state law," the IRS said. The guidance also applies to taxpayers whose private loans were discharged as a result of legal settlements against colleges and certain private lenders. The new guidance comes after Treasury and the IRS in recent years have provided similar tax relief to taxpayers who took out loans in order to attend schools owned by Corinthian Colleges Inc. or American Career Institutes Inc. — now-defunct for-profit institutions. Treasury and the IRS said in the new guidance that they determined that it's appropriate to extend that tax relief to people who had taken out loans to finance attendance at other schools as well.

New Jersey Could Soon Become First State to Mandate Severance for Employees in Mass Layoffs

New Jersey state lawmakers approved a bill Monday that would compel employers to give more notice and pay severance to laid-off workers, after a public backlash against the treatment of workers who lost their jobs in the retail apocalypse, the Washington Post reported. The bill, which has been called the “Toys ‘R’ Us bill,” after workers of the retail chain that filed for bankruptcy in 2017, requires larger employers to pay workers one week of severance for each year of service. It also gives employees 90 days’ notice, rather than just 60 days, in the event of a mass layoff. It was approved 55-21. “When businesses go bankrupt or close, far too often, workers are given little notice or severance pay. We saw this happen right here in New Jersey last year when Toys “R” Us filed for bankruptcy," lawmaker Annette Quijano (D), a primary sponsor of the bill, said in a statement. "Employees deserve to be treated fairly, especially when they are forced to leave a job due to circumstances beyond their control.” The bill, which only applies to employers with 100 or more full- or part-time workers laying off 50 or more people, was approved by the state’s Senate in December. It now goes to the desk of Gov. Phil Murphy (D).

Consumer Spending Solid at End of Holiday Shopping Season

Consumers headed into 2020 on a solid footing, driving up retail sales in the final month of the holiday season, the Wall Street Journal reported. December retail sales, a measure of purchases at stores, restaurants and online, increased a seasonally adjusted 0.3 percent from a month earlier, the Commerce Department said today. Solid gains in nearly every category offset a drop in motor-vehicle sales, the data showed. Consumer spending has been supported by a strong jobs market and wage gains, as well as diminished tariff uncertainty over the U.S.-China trade dispute. Excluding the volatile categories of autos and gas, retail sales rose 0.5 percent in December, the strongest pace of growth in five months. Still, updated numbers from Commerce showed retail sales outside of motor vehicles and gasoline declined in the prior three months. December department-store sales slipped 0.8 percent from November and declined 5.5 percent from a year earlier. Meanwhile, sales at nonstore retailers, a category that includes internet merchants such as Inc., were up 0.2 percent from November and increased 19.2 percent compared with a year earlier. (Subscription required.)

Banks Reported 2019 Large Profits with the Help of Consumers’ Credit Card Debt

A growing tide of consumer debt helped propel some of the country’s largest banks to major profits last year, the Washington Post reported. JPMorgan Chase, the country’s largest bank, said this week that it earned a record $36 billion profit last year with credit card loans increasing 8 percent. U.S. Bancorp said yesterday that it brought in $7 billion last year with the help of a 7.6 percent increase in its credit card business. Citigroup, which reported a profit of $19 billion last year, said that its branded cards business increased 8 percent in North America last year. Even Wells Fargo, which has been struggling to rebound from scandals, found a bright spot with consumers, reporting that credit card loans were up $2 billion during the fourth quarter. “Even though consumers are confident, people are still carrying significant debt,” said Ted Rossman, an analyst for Consumers’ appetite for credit cards has not been dampened by relatively high interest rates. The average rate is 17.3 percent, near a record high, for consumers with a good credit score, according to, which surveys the country’s 100 most popular cards. The cost is steeper for consumers with lower credit scores, 25.30 percent, according to the site.

Lawmakers Press Rulemaker on Economic Impact of Credit-Loss Standard

The chairman of the Financial Accounting Standards Board on Wednesday faced a barrage of questions from lawmakers seeking to better understand the economic effects of a controversial new rule on credit-loss accounting, the Wall Street Journal reported. During an oversight hearing, members of the House Committee on Financial Services’ Subcommittee on Investor Protection, Entrepreneurship and Capital Markets questioned FASB Chairman Russell Golden, expressing concern that the new accounting rule would negatively affect banks, consumers and the economy at large. Lawmakers cited fears from the banking industry that the rule would curtail credit availability, make credit losses worse in a recession and heighten volatility of bank earnings. “We are setting ourselves up for an even larger problem going forward, caused by accounting,” said Rep. Trey Hollingsworth (R-Ind.). The Current Expected Credit Losses rule (CECL) requires lenders to record expected future losses as soon as loans are issued. The rule was adopted in 2016 and started to go into effect for large public banks on Dec. 15. FASB in October delayed the rule’s effective start date for private and nonprofit lenders until after Dec. 15, 2022. Before CECL, lenders didn’t have to recognize losses until they had evidence the losses had been incurred. FASB, which sets U.S. accounting standards, changed the rule to provide investors with more transparency about the loan-issuing process. (Subscription required.)

2020 Edition of the Mini-Code Now Available for Purchase

Now available for purchase and immediate delivery: The 2020 edition of the Mini-Code (incorporating the Small Business Reorganization Act, the Family Farmer Relief Act, and the HAVEN Act), plus the 2020 edition of the Mini-Rules (including all rules adopted as of Dec. 1, 2019). Order your copies today at!

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New on ABI’s Bankruptcy Blog Exchange: In Rebuke of CFPB, States Look to Get Tough on Debt Collectors

In another sign of state officials trying to outdo the Consumer Financial Protection Bureau, governors in California and New York want greater authority to license and oversee the debt collection industry, 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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