In re Patel, a recent CA bankruptcy decision, held that chapter 11’s requirement for individual debtors to pay unsecured creditors from “disposable income,” encompasses income from all sources. Note that this would equally apply in Subchapter V. The Patel Chapter 11 plan listed only motel income which was insufficient to fund a payout to unsecured creditors. While the debtor’s additional income could have funded the plan, the case was converted to Chapter 7 at the creditors’ request.
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The Student Borrower Bankruptcy Relief Act has been initiated by the House to eliminate the Bankruptcy Code’s ambiguous barrier to student loan discharge, which has been read to require a showing of severe financial hardship if the debtor is forced to re-pay. This complements the judicial trend to discharge private student debt to effect the policy of pro rata sharing among creditors and provide a fresh start to debtors.
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Credit scores can begin an uptick fairly quickly after the completion of a bankruptcy case. Borrowing can begin within a few months via secured credit cards or credit-builder loans, and VA or FHA mortgages can be obtained within two years. Moreover, increasing innovations in fintech should yield more non-traditional opportunities. In sum, while bankruptcy may remain on credit reports for 10 years, it can create a trajectory for a fresh future through discharge and opportunities to re-tool.
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Bankruptcy law is designed to give us all a fresh start. Most people don’t have to give up their basic possessions and can keep $25k plus of equity in their homes. They can choose between immediate discharge relief under Chapter 7, or instituting a repayment plan under Chapter 13, if their assets are beyond the scope of basic Chapter 7 protections. For small business, they can choose either Chapter 13 or the new Subchapter V of Chapter 11 which dispenses with creditor consent. As you weigh you or your clients’ financial retooling options, federal bankruptcy might be the best path forward to a new beginning.
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Gift card claims in bankruptcy are spotlighted in this article which highlights efforts by consumer advocates to put these claims at the head of the pay-out line, as well as provide support through an official court committee of consumer creditors. Note that retailers may shorten the deadline for collecting on the card.
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A creative move by a pro se debtor resulted in a successful discharge of its student loan via the Servicer’s default judgement, followed by a full pay-off of the loan by the Servicer to the Department of Education. In a recent bankruptcy court decision, the court sanctioned the Servicer for harassing the debtor post-bankruptcy, and required it to both pay off the debt and compensate the debtor the amount of $24,000.
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The SEC has recently published a proposed amendment to expand the “Accredited Investor” definition to go beyond financial net worth. Certain certified educational and insider knowledge will suffice, coming closer to the definition of “sophisticated” under Rule 506. In addition, LLC’s are now incorporated into the definition, among Indian tribe, government and other communities. Stay tuned as the rule hopefully goes effective in mid-October!
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As businesses struggle to survive COVID-19 closures, courts are continuing to find that Business Interruption policies do not cover pandemics. This is where the government needs to step in and help subsidize businesses per the model being followed in Canada. Otherwise, bankruptcy may be the only other option.
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In yet another decision by a bankruptcy court, a private loan by Navient, a popular student loan lender, was discharged in Chapter 13. While government loans cannot be discharged, the recent COVID-19 legislation has now implemented the debt forgiveness previously promised to those working in the non-profit sector. This is a good sign for student borrowers and is trending toward equalizing the playing field in bankruptcy.
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Employees in California are newly entitled to a 15-day heads up of a utility’s bankruptcy filing, as well as job security for at least 6 months after the filing. PG&E Corp. was prompted to disclose its intent to file for chapter 11 by a new California law that includes this novel provision requiring a 15 day warning to employees before seeking protection and freezing for at least six months the utility’s ability to potentially lay off workers after filing for bankruptcy. While this law provides pre-emptive protection for employees (and creditors) of a CA utility that files for bankruptcy, it may be in conflict with federal bankruptcy law that dictates how an entity will function once it files for bankruptcy, as well as state law, by imposing a mandatory employment right. However, as a utility is a state-regulated entity, this law may pass muster. For more information on the validity of this law, please feel free to reach out to us. For a brief description of the launch of this law, please review the following article.
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