Puerto Rico

COMMENTARY: PUERTO RICO ON THE BRINK

Puerto Rico is in financial trouble, after years of bad policies, mismanagement, excessive debt and bad luck, according to a New York Times editorial today. Its economy has been shrinking or stagnant for a decade, and its unemployment rate has soared to nearly 12 percent. The commonwealth and its utilities have debt of $73 billion, its public pension funds are woefully underfunded, and one state agency has warned that the government could be forced to shut down soon because it might run out of money, according to the commentary. Lawmakers in Washington, D.C., and San Juan need to come up with a plan that addresses the financial and economic problems of the territory, which is home to 3.6 million American citizens, according to the commentary. The island's difficulties also affect investors in the 50 states who own the tax-exempt bonds issued by Puerto Rico's government and utilities. One of the biggest and most immediate problems for the island is the roughly $20 billion of debt owed by three government-owned companies: the electricity utility, the water and sewer system and the highway authority. Because Puerto Rico is a territory, these businesses are not allowed to restructure their debt in chapter 9 bankruptcies. Congress should approve a new bill that would allow these and other Puerto Rican government-owned companies, as well as municipalities, to use chapter 9, according to the editorial. Read the full editorial.

REPORT: STUDENT-LOAN SURGE UNDERCUTS MILLENNIALS' PLACE IN U.S. ECONOMY

Beth Ann Bovino, U.S. chief economist at Standard & Poor's, wrote in a recent report that surging student-loan debt represents a key risk to the economy's expansion because wage gains are failing to keep up, Bloomberg News reported today. Education-related loans amounted to $1.16 trillion at the end of last year, a 71 percent increase from the second quarter of 2009, when the latest recession ended. The growth contrasted with declines in mortgages, home-equity loans, credit cards and other forms of consumer borrowing. "Millennials' heavy student-loan burdens could seriously crimp spending," Bovino wrote yesterday in a report. Student borrowing rose more than six times as fast as average hourly earnings between mid-2009 and the end of last year, according to data compiled by the Labor Department. Read more.

For further analysis of student loans and bankruptcy, be sure to pick up a copy of ABI's Graduating with Debt: Student Loans under the Bankruptcy Code.

COMMENTARY: DESPITE SHORTCOMINGS OF CORINTHIAN COLLEGES, FOR-PROFIT COLLEGES SHOULD NOT BE DEMONIZED

While Corinthian Colleges, a major for-profit college company that announced plans to shut down its campuses, certainly deserved government sanctions, it's also important not to demonize the entire for-profit college industry, according to a commentary in today's Washington Examiner. Like many big chain for-profit colleges, Corinthian has a well-documented history of using deceptive recruitment tactics and providing substandard course offerings. Its outcomes, measured in graduation and loan default rates, were dismal, and it failed to address Department of Education allegations that it had falsified job placement data. For-profit colleges do a better job than their traditional peers at recruiting minorities, women, older, and poorer students, according to the commentary. Students who attend two-year programs at for-profits, moreover, graduate at higher rates than students attending similar programs at non-profit private or public colleges. Read the full commentary.

A related commentary in the Huffington Post yesterday said that if we're going to turn off the student loan default spigot, then we need to understand and fix what's preventing borrowers from making choices that seemingly run against their best interests. The logical first step, according to the commentary, is for the Department of Education to instruct its servicers to collect data on why borrowers are not making payments or are letting payments lapse for so long. There's no need for speculation about borrowers' motives when every day servicers are speaking directly to thousands of the very people whose behavior needs to be better understood. Additionally, the commentary recommends collapsing the three highly similar income-driven student loan repayment options with different income caps, terms and conditions into one single program. The commentary also advocates simplifying the process for maintaining hardship repayment eligibility so that program recertification can be as simple as checking a box on one's tax return or welfare application or unemployment filing that authorizes collection agencies to share information with the Department of Education. Read the full commentary.

FED'S TARULLO SEEKS SIMPLER CAPITAL RULES FOR SMALL BANKS

Federal Reserve governor Daniel Tarullo suggested that the Fed and other banking regulators should look for ways to simplify the complex set of capital rules imposed on small banks since the 2008 financial crisis, the Wall Street Journal reported today. "We should explore whether we can achieve the safety and soundness purpose of capital regulation in a simplified way" for community banks, said Tarullo. He added that it was important to update capital rules for all banks after the crisis to make them more sensitive to the real risks posed by various kinds of lending. But regulators should also acknowledge that the greater complexity and detail of the new capital rules requires record-keeping and reporting that can be "particularly costly, in relative terms, for smaller community banks." Read more. (Subscription required.)

COMMENTARY: FIXING WALL STREET'S CULTURE AFTER THE CRISIS

While farther-reaching regulations and better-tailored financial incentives were instituted on Wall Street after the 2008 financial crisis, a commentary in the May edition of The Atlantic examines whether the cultural flaws within the banking industry can be fixed to prevent another crash. Financial regulators since the 2008 crash have looked to policy and within Wall Street firms to correct the fact that bankers' compensation rewarded bad behavior and had a misplaced focus on "counterparties" rather than on clients, according to the commentary. William Dudley, the president of the Federal Reserve Bank of New York, noted that there had been, in recent years, "ongoing occurrences of serious professional misbehavior, ethical lapses, and compliance failures at financial institutions," adding that although these scandals had prompted plenty of fines -- more than $100 billion -- they had resulted in the prosecution of individual bankers and executives "to a lesser degree than I would have desired." Culture, according to the commentary, is a hard thing for any organization to change, and reforms that run against a long-standing ethos -- especially those that emphasize restraint -- can be fragile and reversible depending on the nature, character and ideas of the next CEO who takes over. Read the full commentary.

ABI'S BANKRUPTCY LITIGATION COMMITTEE CALL ON MAY 7 TO FOCUS ON "UNFINISHED BUSINESS" CLAIMS IN LAW FIRM BANKRUPTCIES

ABI members are invited to join the Bankruptcy Litigation Committee's conference call on May 7 at 4:00 pm (EDT) examining law firm bankruptcies. The topics of discussion will center on the "unfinished business" rule and potential claims against former partners of defunct law firms. Participants are encouraged to ask questions about the topics, and speakers will also discuss relevant research, concepts and analysis. Steven S. Flores, of Togut, Segal & Segal LLC in New York, will moderate the discussion. The call is free to ABI members and no registration is required. You may participate by using the following number: (712) 432-1500, #692933.

NEWEST ABI TITLE EXAMINES CREDIT-BIDDING IN BANKRUPTCY SALES!

Make sure to pre-order a copy of Credit-Bidding in Bankruptcy Sales: A Guide for Lenders, Creditors, and Distressed-Debt Investors, the newest title available for purchase in ABI's Bookstore. Although credit-bidding -- in which the secured creditor can credit-bid the amount of its allowed claim in any sale of its collateral by its debtor -- is acknowledged as being an important part of the secured creditor's bundle of rights, some argue that in certain circumstances credit-bidding can chill bidding or otherwise prevent the debtor from maximizing the value of its assets. Credit-Bidding in Bankruptcy Sales details how the courts have handled this debate, with reference to specific cases such as Fisker and Free-Lance Star, and also provides practitioners with the information that they need to know when reviewing credit agreements, debtor-in-possession financing orders and sale orders related to credit-bidding. The book also includes an in-depth analysis of how credit-bidding affects professional fees. Click here to purchase (make sure to log in to receive the discounted ABI member price).

DISCOUNTED SUBSCRIPTIONS TO AUDIO ABI JOURNAL AVAILABLE FROM MODIOLEGAL!

Subscribe now to our new streaming audio Journal, offered by ModioLegal. Narrated articles from each issue of the ABI Journal can now be accessed through your web browser -- on your computer, smartphone, or tablet -- for a low monthly fee. For a limited time, subscribe to this new service now for just $9.95 a month (regularly $12.95) with coupon code abi-early. Sign up for any audio Journal plan, and your first month is free! Go to http://www.modiolegal.com/subscribe to learn more, or send an email to [email protected] for a free demo.

NEW CASE SUMMARY ON VOLO: VALONE V. WAAGE (IN RE VALONE; 11TH CIR.)

Summarized by Michael Pugh of Thompson, O'Brien, Kemp & Nasuti, PC

The Eleventh Circuit held that the filing of a chapter 13 petition by a Florida debtor who owns, or debtors who own, homestead property does not foreclose the availability of Florida's wildcard exemption to that debtor or those debtors. The court reasoned that the debtors' residence was protected from creditors by the automatic stay, not the homestead exemption, and that debtors are eligible to claim the wildcard exemption in their personal property.

There are more than 1,700 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: CFPB SHOULD HEED CONCERNS OF PAYDAY LENDERS

A recent blog post said that the compliance costs associated with the CFPB's proposed reforms to the payday lending industry would force many small businesses to close shop, reducing access to short-term credit for many Americans.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 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.

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2015

May
- Credit and Bankruptcy Symposium
May 7-8, 2015 | Uncasville, Conn.
- New York City Bankruptcy Conference
May 14, 2015 | New York, N.Y.
- Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015 | New York, N.Y.
- Litigation Skills Symposium
May 19-22, 2015 | Chicago, Ill.

June
- Memphis Consumer Bankruptcy Conference
June 5, 2015 | Memphis, Tenn.
- Central States Bankruptcy Workshop
June 11-14, 2015 | Traverse City, Mich.
- Cross-Border Insolvency Program
June 18, 2015 | New York

July
- Northeast Bankruptcy Conference
July 9-12, 2015 | North Falmouth, Mass.
- Northeast Consumer Bankruptcy Forum
July 9-11, 2015 | North Falmouth, Mass.
- Beijing Insolvency & Restructuring Symposium
July 13-14, 2015 | Beijing, China
- Southeast Bankruptcy Workshop
July 23-26, 2015 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
Aug. 6-8, 2015 | Hershey, Pa.

September
- Southwest Bankruptcy Conference
Sept. 10-12, 2015 | Las Vegas, Nev.

COLLEGE LOAN REFINANCING LEGISLATION RETURNS TO CONGRESS

The 114th Congress is again considering legislation to allow borrowers with outstanding student loan debt to refinance at rates set for new borrowers, Collections & Credit Risk reported today. The legislation would allow people with outstanding student loan debt to refinance at interest rates approved last year for new borrowers, according to Sen. Elizabeth Warren (D-Mass.), who re-introduced the Bank on Students Emergency Loan Refinancing Act along with Rep. Joe Courtney (D-Conn.). Warren first introduced the legislation in May 2014. It was voted on in the 113th Congress, and all Senate Democrats, along with three Senate Republicans, voted to move the bill forward, but it fell just short of breaking a Republican filibuster. President Barack Obama then followed that defeat by proposing two plans designed to ease the burden of student loan debt. "Since last year, nearly a million more borrowers have fallen behind on their student loan payments," Warren said. "Young people who are working hard to build a future deserve a real opportunity to succeed, and that means letting struggling borrowers refinance their student loans to take advantage of lower interest rates -- the same way people refinance a mortgage, a car loan or business debt." Read more.

Not able to catch the remarks by Sen. Warren at the opening reception of ABI's 33rd Annual Spring Meeting last Thursday? Watch them here.

For further analysis of student loans and bankruptcy, be sure to pick up a copy of ABI's Graduating with Debt: Student Loans under the Bankruptcy Code.

COMMENTARY: CONGRESS SHOULD CONSIDER ALTERNATIVES TO PUERTO RICO BANKRUPTCY

While Congress is considering a measure that would allow Puerto Rico to declare bankruptcy, a measure that could turn into a short-term bailout, it would be much wiser to insist on responsible measures that focus on comprehensive, long-term remedies, according to a PennLive.com commentary yesterday. Puerto Rico has a staggering $73 billion in debt, and Puerto Rico Gov. Alejandro Garcia Padilla has exacerbated the financial situation by signaling his intent to avoid paying debts, which has left the island's credit rating at junk status and reduced investor appetite. A House Judiciary subcommittee in February heard arguments for granting Puerto Rico eligibility under chapter 9. This seems innocuous at first glance, according to the commentary, but a closer look reveals bankruptcy could pose a threat to taxpayers as well as to Americans' retirement savings. Many Americans are invested in Puerto Rico's bonds through their 401(k)'s and mutual funds and could take a financial hit as a result of chapter 9 being extended to Puerto Rico. Lawmakers should reject any sort of bailout and demand comprehensive changes in Puerto Rico's governance and finances, according to the commentary. Read more.

CASE PUTS FOCUS ON THE THREAT OF JAIL TO PAY CHILD SUPPORT

Walter Scott’s controversial death in South Carolina has focused national attention not just on police violence, but also on the use of jail to pressure parents to pay child support, a policy employed by many states today, the New York Times reported yesterday. While investigations continue into the scuffle and traffic stop that led to his death, Scott's family alleged that he attempted to flee the scene because of a warrant out for his arrest for nearly $18,000 of unpaid child support. Though the threat of jail is considered an effective incentive for people who are able but unwilling to pay, many critics assert that punitive policies are trapping poor men in a cycle of debt, unemployment and imprisonment. The problem begins with child support orders that, at the outset, can exceed parents' ability to pay. When parents fall short, the authorities escalate collection efforts, withholding up to 65 percent of a paycheck, seizing bank deposits and tax refunds, suspending driver’s licenses and professional licenses, and then imposing jail time. "Parents who are truly destitute go to jail over and over again for child support debt simply because they're poor," said Sarah Geraghty, a lawyer with the Southern Center for Human Rights, which filed a class-action lawsuit in Georgia on behalf of parents incarcerated without legal representation for failure to pay. There is no national count of how many parents are incarcerated for failure to pay child support, and enforcement tactics vary from state to state, as do policies such as whether parents facing jail are given court-appointed lawyers. But in 2009, a survey in South Carolina found that one in eight inmates had been jailed for failure to pay child support. In Georgia, 3,500 parents were jailed in 2010. The Record of Hackensack, N.J., reported last year that 1,800 parents had been jailed or given ankle monitors in two New Jersey counties in 2013. Read more.

ANALYSIS: CEOS AWARDED MORE CASH PAY

Cash compensation for chief executives rose at its fastest rate in at least four years in 2014, swelling to 37.3 percent of total CEO compensation, higher than it has been since 2010, according to a survey of early proxy filings by the Hay Group for the Wall Street Journal. The rise in cash pay contrasts with trends just after the financial crisis, when shares had cratered and companies filled out their top officers’ pay packages with equity grants. Overall CEO pay rose more rapidly last year than it has in recent years, according to the Hay Group survey, which looked at 50 companies that posted more than $8.7 billion in revenue and filed their annual proxy statements by early March. Total pay was up by a median 6.9 percent to $12.2 million, bigger than the 4.3 percent increase a year earlier. Shareholders did better, with a total return of 23 percent in 2014 among the companies that were analyzed. Read more. (Subscription required.)

LATEST ABI PODCAST LOOKS AT CFPB'S PROPOSED REGULATIONS ON PAYDAY AND VEHICLE TITLE LOANS

ABI Resident Scholar Prof. Anne Lawton talks with Jon Pearson of Ballard Spahr LLP about the Consumer Financial Protection Bureau's recently proposed regulations on payday and vehicle title loans. Click here to listen to the podcast.

NEW OFFICERS AND DIRECTORS ELECTED DURING ABI’S 33rd ANNUAL SPRING MEETING

The following members of the American Bankruptcy Institute (ABI) were elected to leadership positions as officers and directors during ABI's 33rd Annual Spring Meeting, held April 16-19 in Washington, D.C.:

James Patrick Shea of Armstrong Teasdale LLP (Las Vegas) becomes ABI President for a one-year term, succeeding Brian L. Shaw of Shaw Fishman Glantz & Towbin LLC (Chicago), who now assumes the position of Immediate-Past President. Jeffrey N. Pomerantz of Pachulski Stang Ziehl & Jones LLP (Los Angeles), formerly ABI Vice President- Education, was named President-Elect and will become President in April 2016. Patricia A. Redmond of Stearns, Weaver, Miller, Weissler, Ahadeff & Sitterson, PA (Miami) succeeds James T. Markus of Markus Williams Young & Zimmermann LLC (Denver) as Chairman of the Board for a one-year term. Douglas E. Deutsch of Chadbourne & Parke, LLP (New York) was named to a two-year term as ABI's Vice President-Education, succeeding Pomerantz. Bankruptcy Judge Dennis R. Dow (W.D. Mo.; Kansas City) was elected to serve as Secretary, succeeding Rudy J. Cerone of McGlinchey Stafford, PLLC (New Orleans, La.). Newly named to ABI's 17-member Executive Committee are Bankruptcy Judge Eugene R. Wedoff (N.D. Ill.; Chicago) and Douglas Lutz of Frost Brown Todd (Cincinnati). For more information, including the full list of new Board of Directors, please click here.

DISCOUNTED SUBSCRIPTIONS TO AUDIO ABI JOURNAL AVAILABLE FROM MODIOLEGAL!

Subscribe now to our new streaming audio Journal, offered by ModioLegal. Narrated articles from each issue of the ABI Journal can now be accessed through your web browser -- on your computer, smartphone, or tablet -- for a low monthly fee. For a limited time, subscribe to this new service now for just $9.95 a month (regularly $12.95) with coupon code abi-early. Sign up for any audio Journal plan, and your first month is free! Go to http://www.modiolegal.com/subscribe to learn more, or send an email to [email protected] for a free demo.

NEW CASE SUMMARY ON VOLO: O&S TRUCKING INC. V. MERCEDES BENZ FINANCIAL SERVICES USA (IN RE O&S TRUCKING INC.; 8TH CIR.)

Summarized by William Wallo ofWeld, Riley Prenn & Ricci SC

The Eighth Circuit BAP dismissed the debtor's appeal from an order confirming its third amended plan on the grounds that the debtor did not have standing and that the debtor's arguments were moot.

There are nearly 1,700 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: HOW LONG DOES BANKRUPTCY STAY ON A CREDIT REPORT, EVEN IF CASE IS DISMISSED?

A recent ABI Blog Exchange post examined why a debtor continues to have a bankruptcy on his credit report, even though the chapter 13 case was dismissed.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 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.

2015

May
- Credit and Bankruptcy Symposium
May 7-8, 2015 | Uncasville, Conn.
- New York City Bankruptcy Conference
May 14, 2015 | New York, N.Y.
- Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015 | New York, N.Y.
- Litigation Skills Symposium
May 19-22, 2015 | Chicago, Ill.

June
- Memphis Consumer Bankruptcy Conference
June 5, 2015 | Memphis, Tenn.
- Central States Bankruptcy Workshop
June 11-14, 2015 | Traverse City, Mich.
- Cross-Border Insolvency Program
June 18, 2015 | New York

July
- Northeast Bankruptcy Conference
July 9-12, 2015 | North Falmouth, Mass.
- Northeast Consumer Bankruptcy Forum
July 9-11, 2015 | North Falmouth, Mass.
- Beijing Insolvency & Restructuring Symposium
July 13-14, 2015 | Beijing, China
- Southeast Bankruptcy Workshop
July 23-26, 2015 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
Aug. 6-8, 2015 | Hershey, Pa.