Category: Pending and New Legislation

  • We Can Cancel Student Loans for Essential Workers Now

    Posted by

    Alan White

    While the House HEROES bill's scaled-down student loan forgiveness is unlikely to become law, many essential workers are eligible for student loan cancellation now under existing law. The Public Service Loan Forgiveness program covers all police, firefighters, public school teachers, nurses, soldiers, prison guards, and contact tracers, among others. Once public servants complete 10 years of payments, the law says they get their remaining federal student debt cancelled. So far nearly 1.3 million public servants are working towards their PSLF discharges, but the US Education Department has granted only 3,141 discharges out of 146,000 applicants.

    In the month of March, 5,656 borrowers applied for PSLF. 114 received a discharge.  Meanwhile another 15,000 entered the pipeline by having their first employment certification approved, bringing the total to almost 1.3 million public servants. 

    I have written elsewhere about how Congress and the Education Department could fix this program, even without new legislation.

    The average total student loan debt discharged for PSLF borrowers is more than $80,000. For a median income earner, monthly payments range from $250 to $900 depending on the payment plan. PSLF discharges can yield an immediate and significant savings for these workers. 

  • Letter from 163 Bankruptcy Judges Backs Venue Reform

    Posted by

    Bob Lawless

    Support seems to keep building even more for changes to where large corporate debtors can file chapter 11. The latest is a letter from "163 sitting, recalled, or retired United States Bankruptcy Judges." From the letter:

    The venue selection options for bankruptcy cases under current law have led to forum shopping abuses that have disenfranchised local employees, creditors, and parties in interest from participation in bankruptcy cases, undermined public confidence in the integrity of the United States Courts and the bankruptcy process, inhibited the development of uniform, national bankruptcy jurisprudence, and led to inefficient allocation of judicial resources. 

    The judges join forty-two state attorneys general who signed a February letter supporting similar changes. The House bill (H.R. 4421) now has fifteen co-sponsors, which I believe is more than any venue reform bill has had. With all of that support, my views don't matter much, but I agree too. 

    Like I wrote before, there have been lots of efforts at venue reform, but this time feels different.

  • The Role of Chapter 11 Bankruptcy in Addressing the Consequences of COVID19.

    Posted by

    Jay Lawrence Westbrook

    Many businesses may require bankruptcy proceedings to assist in recovery from the CV Recession. In my view, the best legal approach to any Chapter 11 reforms necessitated by the emerging CV-induced economic crisis lies in building up from the Small Business Reorganization Act (SBRA) to cover more Small and Medium Enterprises (SME), rather than trying to adjust the general provisions of Chapter 11, the home of bankruptcies like General Motors and American Airlines. Our database at the Business Bankruptcy Project shows that in 2018 more than half of the businesses that filed in Chapter 11 in the Southern District of New York would fall under the temporary SBRA cap, $7.5 million.

    Most immediately, the recently voted funds for small business must be available in bankruptcy reorganization cases. We must remove any barrier to using them in that way. I start the study of Chapter 11 by reminding students that the clerk at the bankruptcy court does not hand out money. Bankruptcy does not produce funding, although it can help facilitate it in important ways. Thus there is no legal reform that will avoid the need for very substantial financing with implications far beyond reorganization procedures. Bankruptcy cannot help unless it can be used in connection with rescue funding.

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  • CARES Act Mortgage Foreclosure and Tenant Eviction Relief

    Posted by

    Alan White

    The final text of the act is now available here. The foreclosure relief is in Section 4022 and the eviction moratorium is in Section 4024. Mortgage borrowers with federally related loans (FHA, VA, Farmer's Home, Fannie or Freddie) may request 6 months of forbearance, i.e. no payments required, renewable for another 6 months, during which no late fees or penalties may be imposed, but interest continues to run (unlike student loans.) Homeowners need not provide documentation; a certification that they are affected by the COVID-19 crisis is enough. There is no statutory provision for loan modification after the forbearance period ends, so unpaid payments will still be due, but the agencies will likely be requiring or encouraging servicers to offer workouts when the forbearance ends. Section 4023 provides relief for landlords of multifamily buildings with federally related mortgages, conditioned on no evictions. 

    The eviction relief is limited to tenants in properties on which there is a federally related mortgage loan, and is only for 4 months. In brief, landlords may not send notices to quit or go forward with evictions. Tenant certifications of hardship are not required. An excellent summary of the eviction moratorium is available at the National Housing Law Project site here. Some states are also imposing eviction moratoria covering more tenants.

  • CARES ACT Student Loan Relief

    Posted by

    Alan White

    The CARES Act signed into law last week suspends payments and eliminates interest accrual for all federally-held student loans for six months, through September 30. These measures exclude private loans, privately-held FFEL loans and Perkins loans. The other five subsections of section 3513 mandate important additional relief. Under subsection (c) the six suspended payments (April to September) are treated as paid for purposes of “any loan forgiveness program or loan rehabilitation program” under HEA title IV. In addition to PSLF, this would include loan cancellation at the end of the 20- or 25- year periods for income-dependent repayment. Loan rehabilitation is a vital tool for borrowers to get out of default status (with accompanying collection fees, wage garnishments, tax refund intercepts, and ineligibility for Pell grants) by making nine affordable monthly payments. This subsection seems to offer a path for six of those nine payments to be zero payments during the crisis suspension period.

    Subsection (d) protects credit records by having suspended payments reported to credit bureaus as having been made. Subsection (e) suspends all collection on defaulted loans, including wage garnishments, federal tax refund offsets and federal benefit offsets.

    Finally, and importantly, subsection (g) requires USED to notify all borrowers by April 11 that payments, interest and collections are suspended temporarily, and then beginning in August, to notify borrowers when payments will restart, and that borrowers can switch to income-driven repayment. This last provision attempts to avert the wave of default experienced after prior crises (hurricanes, etc.) when, after borrowers in affected areas had been automatically put into administrative forbearance, the forbearance period ended and borrowers continued missing payments. Whether the “not less than 6 notices by postal mail, telephone or electronic communication” will actually solve the payment restart problem will depend a great deal not only on the notices but also the capacity of USED servicers to handle the surge of borrower calls and emails. At present servicers are struggling with handling borrower requests because many employees are in lockdown or quarantine.

  • Summary of the McConnell Bailout Bill

    Posted by

    Adam Levitin

    The McConnell Bailout Bill (a/k/a HR 748 or the CARES Act), weighs in at just shy of 600 pages. I've taken the liberty of summarizing it in a powerpoint deck for teaching (syllabus be damned) and thought it might be helpful to make generally available. Here it is. (11:00 3/23 updated/corrected version).

    I only warrant it as best efforts (meaning I might have misread or just missed something in this monster bill) and I have made no attempt to summarize the details of the social insurance program (UI, Medicare, Medicaid) interventions because they are outside my expertise. You'll have to read the bill itself (Part I and Part II) for that.  

    I'll note quickly two things for Slips aficionados: there's no bankruptcy piece anywhere within the bill. There might end up being some very minor bankruptcy changes, but bankruptcy really isn't where the action is right now. 

    You might consider how the airline bailout package in the bill compared with GM/Chrysler. That ought to be the benchmark for direct government rescue lending to real economy firms.  

  • COVID-19 Response: The Need for Speed

    Posted by

    Adam Levitin

    While Congress struggles to figure out the best way to respond to the coronavirus pandemic, it is very apparent that immediate relief measures are necessary, if only to buy time for a more comprehensive approach. Layoffs are already happening and with they continue, it will result in more economic disruption from diminished consumption.

    1. Sending out checks isn't fast enough (and can't happen in two weeks)

    There is, fortunately, some recognition of that speed is imperative, but there's a right way and a wrong way to do it. The wrong way is what the Trump administration is proposing, namely sending everyone a check. Besides being poorly tailored—$1,000 isn't enough for those who really need help and is wasted on many other folks—the problem is it just cannot happen fast enough. No one is being honest about the operational problems. Treasury Secretary Steven Mnuchin is going around saying that he wants to get checks for $1,000 to every American within two weeks. That's just not possible, and Mnuchin should stop overpromising. 

    Here's why it won't work fast enough: for Treasury to send everyone a check, it would need to know where to send the checks. It doesn't. Treasury knows where to send checks to individuals who are receiving Social Security and Disability Insurance (actually, it would be electronic transfers in almost all such cases). But what about everyone else? Treasury doesn't know (a) who is still alive, and (b) where they live. The first problem might mean sending out some checks that shouldn't happen, but the second problem is more serious, as it means that checks won't get where they need to go. Treasury is able to send me a tax refund because I give an address with my tax return. At best Treasury has year-old information, which will be wrong for many people. Those people who most need the money are the people who are most likely to have moved in the last year—economically insecure renters (see Matthew Desmond's Evicted on this). Sending everyone a check really isn't a very good solution. 

    2. Foreclosure/eviction moratoria are equivalent to an immediate cash injection to the economy.

    Fortunately, there's a better solution:  an immediate national moratorium on foreclosures, evictions, repossessions, utility disconnects, garnishments, default judgments, and negative credit reporting for all consumers and small businesses. The point of a national collection action moratorium is not to be nice to debtors. A national collection moratorium is a stimulus measure:  it has the effect of immediately injecting cash into the economy in that it allows people and businesses to shift funds from debt service obligations to other consumption. It's basically a giant forced loan from creditors to debtors. And it happens immediately, without any administrative apparatus. There's nothing else that will have such a big effect so immediately. Congress should move on moratorium legislation asap as a stand-alone bill to buy itself some more time for a longer-term fix.  

    Now let's be clear—what I am talking about is not debt forgiveness. It is forced forbearance. The debts will still be owed and may accrue interest and late fees (there may be ways to limit those, but that's another matter). That's important because it substantially reduces the argument that the delay constitutes a Taking—government is always free to change how remedies operate, such as changing foreclosure timelines, etc. without the changes being a Taking.

    This is exactly what a moratorium would be doing. A number of states and localities have already undertaken such moratoria, and FHFA and HUD have done so for federally or GSE insured or guarantied loans. But we've got a national crisis, so this should be done uniformly on the federal level using the Interstate Commerce power for the entire consumer and small business debt market. Given that all collection actions involve the mails or wires and that debt markets are national, this seems squarely within the scope of federal power. 

    Now a collection moratorium is not a permanent fix and will cause some dislocations itself. Consumers/small businesses will eventually need to come current on their obligations, and they may need assistance to do so, but that's something that we can work on later when we're not in free fall. But right now what we need more than anything is time, and a collection moratorium can buy us some time more broadly and more immediately than any other possible step. 

  • Consumer Bankruptcy, Done Correctly, To Help Struggling Americans

    Posted by

    Pamela Foohey

    Today, Senator Elizabeth Warren unveiled her new plan to reform the consumer bankruptcy system. The plan is simple, yet elegant. It is based on actual data and research (including some of my own with Consumer Bankruptcy Project co-investigators Slipster Bob Lawless, former Slipster, now Congresswoman Katie Porter, and former Slipster Debb Thorne). Most importantly, I believe it will make the consumer bankruptcy system work for American families. And, as a bonus, it will tackle the bad behavior that big banks and corporations currently engage in once people file, like trying to collect already discharged debts, and some non-bankruptcy financial issues, such as "zombie" mortgages.

    In short, the plan provides for one chapter that everyone files, combined with a menu of options to respond to each families' particular needs. It undoes some of the most detrimental amendments that came with the 2005 bankruptcy law, including the means test. In doing so, it sets new, undoubtedly more effective rules for the discharge of student loan debt, for modification of home mortgages, and for keeping cars. It also undoes "smaller" amendments that likely went unnoticed, but may have deleterious effects on people's lives. Warren's plan gets rid of the current prohibition on continuing to pay union dues, the payment of which may be critical to allowing people who file bankruptcy to keep their jobs and keep on their feet. Similarly, the plan eliminates problems debtors face paying rent during their bankruptcy cases, which can lead to eviction.

    One chapter that everyone files means that the continued racial disparities in chapter choice my co-authors and I have documented will disappear. No means test, combined with less documentation, as provided by Warren's plan, means that the most time-consuming attorney tasks will go away. Attorney's fees should decrease. Warren's plan also provides for the payment of fees over time. People will not have to put off filing for bankruptcy for years while they struggle in the "sweatbox." Costly "no money down" bankruptcy options should disappear. People will have the chance to enter the bankruptcy system in time to save what little they have, which research has shown is key to people surviving and thriving post-bankruptcy.

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  • Hope for Helping the Prospective Payday Loan Customer

    Posted by

    david lander

    Short term (payday) loans and high interest consumer installment loans continue to deplete low income households of micro dollars and their communities of macro dollars. Although the CFPB seems intent on supporting the depletions, a good number of states have provided some relief.  Even in states without interest rate limitations there are a couple of ideas that can help.

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  • Trump Administration Declares Open Season on Consumers for Subprime Lenders

    Posted by

    Adam Levitin
    The Trump administration has just proposed a rule that declares open season on consumers for subprime lenders. The Office of Comptroller of the Currency and the Federal Deposit Insurance Corporation (on whose board the CFPB Director serves) have released parallel proposed rulemakings that will effectively allowing subprime consumer lending that is not subject to any interest rate regulation, including by unlicensed lenders.

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