Blogs
By Liz McCormick
U.S. student loan debt now equals the size of the $1.3 trillion U.S. high-yield corporate bond market, presenting investors with a whole different range of risks.
“Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.”
While the trend of rising defaults on student loans doesn’t pose “systemic financial risks,” it does impact household behavior as the debt load itself hurts home ownership rates, Young and Karoui said.
The share of student loan debt that is securitized, meaning it’s backed by assets and known as asset-backed securities, is about $190 billion, according to Goldman Sachs. Of that, about $150 billion is linked to loans where the repayment of the principal is guaranteed by the U.S. government.
“Most of the remaining student loan debt not in ABS format is provided to students by the U.S. government through its Federal Direct lending program,” wrote Young and Karoui.
Copyright 2017 Bloomberg L.P. All rights reserved.
Numerous changes to the Federal Rules of Bankruptcy Procedure (the “Rules”) take effect on December 1, 2017. The changes significantly impact the administration of consumer bankruptcy cases, and Chapter 13 cases in particular. Read More ›
Tags: Chapter 13, Chapter 7
In law, the “statute of limitations” is the deadline for bringing a claim or case. If a creditor wishes to sue a debtor in order to collect a debt, such as a medical bill resulting from a surgery or hospital visit, the creditor must sue before the statute of limitations runs out of time. If the creditor misses the deadline and the statute of limitations expires, the claim will be time-barred, which means the creditor will be unable to file a lawsuit. However, waiting for the statute of limitations to expire is seldom an efficient or practical strategy for dealing with medical debt. It may be more useful to consult a Sacramento bankruptcy lawyer, who can help you reduce or eliminate medical debt by filing for Chapter 7, Chapter 13, or in rare cases, Chapter 11.
How Long Can Debt Collectors Come After You for Medical Bills?
The answer to this question depends on where you live, as each state has a different set of statutes of limitations. Generally speaking, they range anywhere from approximately one to six years, depending on the nature of the claim and the state in which it is being filed.
With respect to the collection of medical debt, the applicable statute of limitations is the statute of limitations for breach (violation) of written contract. In California, the statute of limitations for breach of written contract is typically four years. The clock starts counting down from either the most recent payment date, or the date on which the breach occurred – whichever happened later.
If a hospital, clinic, dental office, or other type of treatment center determines that you have breached your contract by failing to pay your bill, the facility may employ various debt collection tactics, such as contacting you over the phone. If initial attempts to collect the debt prove unsuccessful, the facility may turn to a debt collection attorney to file a lawsuit against you. However, the claim would be time-barred if the statute of limitations has expired.
It’s also important to note that state law affords some additional protection to patients in California. Under state law, hospitals must allow a 150-day negotiation period, which is roughly equivalent to five months, for the determination of a payment plan. The hospital that treated you may not send your medical bills to a debt collection agency until the 150-day period has elapsed.
CA Debt Collection Laws
There are strict consumer protection laws defining legal and illegal debt collection tactics. The most prominent example is the Fair Debt Collection Practices Act (FDCPA), a federal law passed during the late 1970s to protect consumers from abusive or deceptive debt collection practices.
The FDCPA, which broadly applies to many types of consumer debts, prohibits numerous consumer debt collection strategies. To provide a few examples, the FDCPA makes it illegal for debt collectors to:
- Call repeatedly for the purpose of causing annoyance or distress.
- Make threats of any kind.
- Pretend to be lawyers, credit reporting company representatives, or government representatives.
- Use abusive or obscene language.
At the state level, California has enacted its own laws to strengthen the FDCPA. The California Fair Debt Collection Practices Act (CFDCPA), which is also called the Rosenthal Fair Debt Collection Practices Act, contains provisions similar to those contained in the federal version of the law.
Unfortunately, it is common for debt collectors to ignore state and federal debt collection laws. If you believe that you have been a victim of creditor harassment, you should consult with an attorney right away. If a creditor violated the FDCPA or other debt collection laws, you may be entitled to “damages” (compensation).
Sacramento Bankruptcy Lawyers Can Help You Erase Medical Debt
It is a valid defense to argue that the statute of limitations has expired. However, this is seldom a practical strategy for debtors. Depending on when the debt was incurred, it could take months or even years before the statute of limitations runs out. In the meantime, the debt will continue to negatively affect your credit score, which will simply worsen any financial difficulties you are currently experiencing.
If you are worried about medical debts that you cannot afford to repay, it may be the right time to consider filing for bankruptcy, which can give you the opportunity to reduce or wipe out your medical debts. In addition, filing bankruptcy will also give you the protection of the “automatic stay.” The automatic stay, which takes immediate effect, is a court order that, with some exceptions, prohibits your creditors from initiating collection actions while your bankruptcy case is in progress.
If you think you may be ready to explore bankruptcy as a strategy for debt relief, turn to The Bankruptcy Group for experience-driven, detail-oriented guidance you can trust. Our knowledgeable legal team includes California Chapter 7 lawyers, Chapter 13 bankruptcy attorneys, and Chapter 11 bankruptcy attorneys serving the Sacramento area. For a free bankruptcy consultation, contact our law offices at (800) 920-5351.
The post What is the Statute of Limitations on Medical Debt in California? appeared first on The Bankruptcy Group, P.C..
The United States Bankruptcy Court for the Western District of Michigan recently issued an opinion in a bankruptcy case involving a husband and wife who filed for Chapter 7 bankruptcy protection. Read More ›
Tags: Chapter 7, Collections
Citibank Deceives Borrowers
Citibank Deceived Borrowers About Tax Benefits, Incorrectly Charged Late Fees and Interest, Sent Misleading Monthly Bills and Incomplete Notices
11/22/17 – The Consumer Financial Protection Bureau (CFPB) took action against Citibank, N.A. for student loan servicing failures that harmed borrowers.
. Specifically, the Bureau found that Citibank:
- Citibank misled borrowers into believing that they were not eligible for a valuable tax deduction on interest paid on certain student loans.
- The company also incorrectly charged late fees and added interest to the student loan balances of borrowers who were still in school and eligible to defer their loan payments.
- Citibank also misled consumers about how much they had to pay in their monthly bills.
- Citibank failed to disclose required information after denying borrowers’ requests to release loan cosigners.
The Bureau is ordering Citibank to end these illegal servicing practices, and to pay $3.75 million in redress to consumers and a $2.75 million civil money penalty.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Enforcement Action
The CFPB’s order requires Citibank to:
- Refund $3.75 million to harmed consumers
- Make changes to their servicing practices
- Pay a $2.75 million fine
- For copy of the Citibank consent order.
- Copy of the Borrower’s Consumer Advisory “Bad Information about your college enrollment status can cost you“
With the announcement that Richard Cordray is stepping down from the Consumer Financial Protection Bureau “CFPB” the Trump administration will amp its attempt to water down the power of the organization. CFPB is the only organization that actively protects the consumers and hold run away businesses (Wells Fargo, Citibank to name one of many). If Trump has his way any changes in the CFPB will lead to either reversing prior orders or reduce, if not eliminate, future attempts to control and/or punish illegal and immoral acts by businesses.
Share this entry
About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. As a teacher and retired law professor, Diane believes in offering everyone, not just her clients, advice about the Arizona bankruptcy and foreclosure laws. She is also a mentor to hundreds of Arizona attorneys. 
I would be flattered if you connected with me on GOOGLE+
*Important Note from Diane: Everything on this web site is available for educational purposes only, is not intended to provide legal advice nor create an attorney client relationship between you, me, or the author of any article. Any information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
The post CItiBank Deceives Student Loan Borrowers appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Medical debt – number one cause for seniors filing bankruptcy
According to an article in Forbes, the 65+ demographic now makes up a higher percentage of bankruptcy filers than it did a decade ago.
Filing for bankruptcy is seen by many seniors as a social stigma. Some live in a nightmare where they are forced to choose between paying a credit card or buying food; paying a medical bill or paying rent. The truth is that bankruptcy can bring a light into their lives by eliminating medical and credit card debts. Many seniors are under the false impression they will lose items necessary to their daily lives: social security, furniture, retirement accounts, vehicles or even pets (see exempt property).
Bankruptcy is a good way to protect heirs.
In many states when a family member passes their creditors have first ‘bite’ at the estate (the deceased’s property). If the deceased filed bankruptcy most, if not all, of their unsecured debts, such as medical debts, credit cards and personal guarantees, would have been discharged (wiped out). Resulting in their heirs receiving their entire estate and not battling with creditors.
Peace of mind – bankruptcy stops the calls and harassment
When creditors are owed money they are not shy to call repeatedly throughout the day demanding payment. Many will lie about their ‘rights’ (saying they have the right to take everything the senior owns). There are laws governing creditors and collection companies but few know about those laws and fewer know their rights.
Most Arizona consumer bankruptcy attorneys offer a FREE consultation
Many, especially seniors, assume that hiring an attorney to help is too expensive – that depends on the situation and the attorney. For most their initial consultation is FREE so take advantage of that option. Always talk to several attorneys before choosing one. Don’t assume the attorney is being honest about their experience and capabilities. Check them out with the various ranking sources: such as Google, LinkedIn, AVVO, and Better Business Bureau, to name a few.
AVOID Used Car Sales Tactics
Beware of firms advertising on TV or the Internet (“pay per click” – if there is an “Ad” icon on the left side of the name this is a paid ad). Those ads are paid by the client in the form of higher fees. NEVER pay an attorney if you feel pressured – this is what I call a “used car sales firm”. They are in the business to get your money, not offer you advice customized to your unique situation.
Talk to the attorney you will be working with, not a staff person. When interviewing the attorney ask how long they have practiced bankruptcy law. Ask what percentage of their practice is focused on consumer work. Ask whether they are experienced in both chapter 7 and chapter 13 cases. Ask the attorney for references. Ask about their policy of returning phone calls. They should be committed to answering specific questions about your situation and help you understand your options.
If, after talking with the attorney you are still confused about the issues you raised, find another attorney. An attorney is should be your guide in understanding your options, including bankruptcy. They should educate you, be there to assist you in avoiding pitfalls and help you plan for your future after bankruptcy. 
Do your homework before hiring anyone.
There are hundreds of “bankruptcy” attorneys in Arizona. Of those just a few will fit the criteria set forth above. Bankruptcy is a very complicated process and you want to use an attorney who will be there when you need them.
Share this entry
About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. As a teacher and retired law professor, Diane believes in offering everyone, not just her clients, advice about the Arizona bankruptcy and foreclosure laws. She is also a mentor to hundreds of Arizona attorneys.
I would be flattered if you connected with me on GOOGLE+
*Important Note from Diane: Everything on this web site is available for educational purposes only, is not intended to provide legal advice nor create an attorney client relationship between you, me, or the author of any article. Any information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
The post Bankruptcy of Seniors Increasing – A Good Option for Many appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
According to court records, in 2016 more than 6,300 Chapter 7 bankruptcy cases were filed in the U.S. Bankruptcy Court for the Eastern District of California, Sacramento Division. The same year, just under 2,150 Chapter 13 cases were filed, bringing the total above 8,000 cases. Some of these bankruptcy petitions were filed by individuals, while others were filed jointly by married couples, similar to the way spouses may choose to file a joint income tax return. But what about couples who are not married? Is it possible to file joint bankruptcy with your boyfriend or girlfriend if you are unmarried? And how are same-sex marriages and domestic partnerships impacted? Sacramento bankruptcy lawyers explain the answers to these important questions for Californians seeking debt relief.
Can I File Bankruptcy Jointly with My Boyfriend or Girlfriend?
Unfortunately for unmarried couples, the answer to this question is no. Even if you have lived with your boyfriend or girlfriend for many years, and you share numerous jointly-held debts together, you will still be prohibited from filing with your partner. Under federal bankruptcy laws, only married couples have the legal option to file bankruptcy jointly.
Though your household income will be assessed when you take the “means test,” which determines whether you should file Chapter 7 or Chapter 13, you cannot treat your boyfriend or girlfriend as a spouse on your bankruptcy forms. Keep in mind that lying on your bankruptcy paperwork could cause your case to be dismissed, which means you will not get the debt relief you are seeking through the bankruptcy.
Can Married Same-Sex Couples or Domestic Partners File Joint Bankruptcy?
In 2015, the United States Supreme Court legalized same-sex marriage with the landmark ruling Obergefell v. Hodges, in which the Court held that state-level bans on same-sex marriage were unconstitutional. According to the results of a Gallup poll published earlier this year, more than 10% of the country’s LGBT adults are now married: a figure that equates to well over 100,000 Americans.
Before Obergefell legalized same-sex marriage in other parts of the country, California extended this right to its residents in 2008. Though the passage of Proposition 8 halted same-sex marriage in California from November 2008 through June 2013, the right was later restored through Hollingsworth v. Perry, which overturned Proposition 8.
As a result of the Hollingsworth and Obergefell rulings, same-sex couples are entitled to the same legal rights as other married couples – including the right to file jointly for bankruptcy. If you and your husband or wife are thinking about filing bankruptcy together, we invite you to contact our Sacramento Chapter 7 lawyers or Sacramento Chapter 13 attorneys for legal guidance. Before you file for bankruptcy in California, it is crucial to determine whether a joint filing would benefit you and your spouse. In many cases, it is more logical and cost-effective for only one person to file. For more information on this subject, see our article on whether married couples are required to file jointly, or simply call us at (800) 920-5351 for a free legal consultation about bankruptcy in California.
Bankruptcy laws no longer draw distinctions between lesbian couples, gay couples, and straight couples. They do, however, continue to draw distinctions between married couples and unmarried couples. If you and your partner are in a domestic partnership, you may be disallowed from filing together. In 2015 in In re Villaverde, the Bankruptcy Court for the Central District of California ruled against allowing two registered domestic partners to file a joint Chapter 13 petition, citing 11 U.S.C. § 302(a), which provides the following:
“A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse.”
The emphasis here is on the word “spouse.” Though domestic partnerships are similar to marriages in many respects, only marital relationships qualify couples for joint bankruptcy petitions.
The bottom line is that you must file individually if you are unmarried. If you are married, you will have the option of filing jointly, but are certainly not required to do so. Filing individually may make better financial sense, depending on the nature of your debts, assets, and income.
In either case, you will file using the Voluntary Petition for Individuals Filing for Bankruptcy (Form B 101). If you are filing jointly, you will be required to supply information for both spouses. Per the instructions given to debtors, “[I]n joint cases, [bankruptcy] forms… ask for information from both debtors. For example, if a form asks, ‘Do you own a car,’ the answer would be yes if either debtor owns a car. When information is needed about the spouses separately, the form uses Debtor 1 and Debtor 2 to distinguish between them.”
CA Bankruptcy Lawyers Serving Sacramento and Roseville
If you and your husband or wife are thinking about filing for bankruptcy together, make sure that filing a joint petition is the best course of action before you begin the process. Depending on your circumstances, you may be better off filing individually and excluding your spouse from the bankruptcy proceedings.
Regardless of whether you file jointly or individually, it is critical that you have step-by-step guidance throughout the process. Bankruptcy laws are extremely technical, and it is easy to overlook valuable opportunities or make costly errors unless you have assistance from an experienced Folsom bankruptcy attorney. For a free consultation, contact The Bankruptcy Group at (800) 920-5351 today.
The post Can Unmarried Couples File Joint Bankruptcy in California? appeared first on The Bankruptcy Group, P.C..
By JESSICA SILVER-GREENBERG, STACY COWLEY and NATALIE KITROEFF
Fall behind on your student loan payments, lose your job.
Few people realize that the loans they take out to pay for their education could
eventually derail their careers. But in 19 states, government agencies can seize stateissued
professional licenses from residents who default on their educational debts.
Another state, South Dakota, suspends driver’s licenses, making it nearly impossible
for people to get to work.
As debt levels rise, creditors are taking increasingly tough actions to chase
people who fall behind on student loans. Going after professional licenses stands out
as especially punitive.
Firefighters, nurses, teachers, lawyers, massage therapists, barbers,
psychologists and real estate brokers have all had their credentials suspended or
revoked.
Determining the number of people who have lost their licenses is impossible
because many state agencies and licensing boards don’t track the information. Public
records requests by The New York Times identified at least 8,700 cases in which
licenses were taken away or put at risk of suspension in recent years, although that
tally almost certainly understates the true number.
Shannon Otto, who lives in Nashville, can pinpoint the moment that she realized she
wanted to be a nurse. She was 16, shadowing her aunt who worked in an emergency
room. She gaped as a doctor used a hand crank to drill a hole into a patient’s skull.
She wanted to be part of the action.
It took years of school and thousands of dollars of loans, but she eventually
landed her dream job, in Tennessee, a state facing a shortage of nurses.
Then, after working for more than a decade, she started having epileptic
seizures. They arrived without warning, in terrifying gusts. She couldn’t care for
herself, let alone anyone else. Unable to work, she defaulted on her student loans.
Ms. Otto eventually got her seizures under control, and prepared to go back to
work and resume payments on her debt. But Tennessee’s Board of Nursing
suspended her license after she defaulted. To get the license back, she said, she
would have to pay more than $1,500. She couldn’t.
“I absolutely loved my job, and it seems unbelievable that I can’t do it anymore,”
Ms. Otto said.
With student debt levels soaring — the loans are now the largest source of
household debt outside of mortgages — so are defaults. Lenders have always pursued
delinquent borrowers: by filing lawsuits, garnishing their wages, putting liens on
their property and seizing tax refunds. Blocking licenses is a more aggressive
weapon, and states are using it on behalf of themselves and the federal government.
Proponents of the little-known state licensing laws say they are in taxpayers’
interest. Many student loans are backed by guarantees by the state or federal
government, which foot the bills if borrowers default. Faced with losing their
licenses, the reasoning goes, debtors will find the money.
But critics from both parties say the laws shove some borrowers off a financial
cliff.
Tennessee is one of the most aggressive states at revoking licenses, the records
show. From 2012 to 2017, officials reported more than 5,400 people to professional
licensing agencies. Many — nobody knows how many — lost their licenses. Some,
like Ms. Otto, lost their careers.
“It’s an attention-getter,” said Peter Abernathy, chief aid and compliance officer
for the Tennessee Student Assistance Corporation, a state-run commission that is
responsible for enforcing the law. “They made a promise to the federal government
that they would repay these funds. This is the last resort to get them back into
payment.”
In Louisiana, the nursing board notified 87 nurses last year that their student
loans were in default and that their licenses would not be renewed until they became
current on their payments.
Eighty-four paid their debts. The three who did not are now unable to work in
the field, according to a report published by the nursing board.
“It’s like shooting yourself in the foot, to take away the only way for these people
to get back on track,” said Daniel Zolnikov, a Republican state representative in
Montana.
People who don’t pay their loans back are punished “with credit scores
dropping, being traced by collection agencies, just having liens,” he said. “The free
market has a solution to this already. What is the state doing with this hammer?”
In 2015, Mr. Zolnikov co-sponsored a bill with Representative Moffie Funk, a
Democrat, that stopped Montana from revoking licenses for people with unpaid
student debt — a rare instance of bipartisanship.
The government’s interest in compelling student borrowers to pay back their
debts has its roots in a policy adopted more than 50 years ago.
In 1965, President Lyndon B. Johnson signed the Higher Education Act, which
created financial aid programs for college-bound students. To entice banks to make
student loans, the government offered them insurance: If a borrower defaulted, it
would step in and pick up the tab. The federal government relied on a network of
state agencies to administer the program and pursue delinquent borrowers. (Since
2010, the federal government has directly funded all student loans, instead of relying
on banks.)
By the late 1980s, the government’s losses climbed past $1 billion a year, and
state agencies started experimenting with aggressive collection tactics. Some states
garnished wages. Others put liens on borrowers’ cars and houses. Texas and Illinois
stopped renewing professional licenses of those with unresolved debts.
The federal Department of Education urged other states to act similarly. “Deny
professional licenses to defaulters until they take steps to repayment,” the
department urged in 1990.
Two years ago, South Dakota ordered officials to withhold various licenses from
people who owe the state money. Nearly 1,000 residents are barred from holding
driver’s licenses because of debts owed to state universities, and 1,500 people are
prohibited from getting hunting, fishing and camping permits.
“It’s been quite successful,” said Nathan Sanderson, the director of policy and
operations for Gov. Dennis Daugaard. The state’s debt collection center — which
pursues various debts, including overdue taxes and fines — has brought in $3.3
million since it opened last year. Much of that has flowed back to strapped towns and
counties.
But Jeff Barth, a commissioner in South Dakota’s Minnehaha County, said that
the laws were shortsighted and that it was “better to have people gainfully
employed.”
In a state with little public transit, people who lose their driver’s licenses often
can’t get to work.
“I don’t like people skipping out on their debts,” Mr. Barth said, “but the state is
taking a pound of flesh.”
Mr. Sanderson countered that people did not have to pay off their debt to regain
their licenses — entering into a payment plan was enough.
But those payment plans can be beyond some borrowers’ means.
Tabitha McArdle earned $48,000 when she started out as a teacher in Houston. A single mother, she couldn’t keep up with her monthly $800 student loan
payments. In March, the Texas Education Agency put her on a list of 390 teachers
whose certifications cannot be renewed until they make steady payments. She now
has no license.
Randi Weingarten, president of the American Federation of Teachers, who has
worked to overturn these laws, called them “tantamount to modern-day debtors’
prison.”
States differ in their rules and enforcement mechanisms. Some, like Tennessee,
carefully track how many borrowers are affected, but others do not keep even
informal tallies.
In Kentucky, the Higher Education Assistance Authority is responsible for
notifying licensing boards when borrowers default. The agency has no master list of
how many people it has reported, according to Melissa F. Justice, a lawyer for the
agency.
But when the agency sends out default notifications, licensing boards take
action. A public records request to the state’s nursing board revealed that the
licenses of at least 308 nurses in Kentucky had been revoked or flagged for review.
In some states, the laws are unused. Hawaii has a broad statute, enacted in
2002, that allows it to suspend vocational licenses if the borrower defaults on a
student loan. But the state’s licensing board has never done so, said William Nhieu, a
spokesman for Hawaii’s Department of Commerce and Consumer Affairs, because
no state or federal student loan agencies have given it the names of delinquent
borrowers.
Officials from Alaska, Iowa, Massachusetts and Washington also said their laws
were not being used. Oklahoma and New Jersey eliminated or defanged their laws
last year, with bipartisan support.
But in places where the laws remain active, they haunt people struggling to pay
back loans.
Debra Curry, a nurse in Georgia, fell behind on her student loan payments when
she took a decade off from work to raise her six children. In 2015, after two years
back on the job, she received a letter saying that her nursing license would be
suspended unless she contacted the state to set up a payment plan.
Ms. Curry, 58, responded to the notice immediately, but state officials
terminated her license anyway — a mistake, she was told. It took a week to get it
reinstated.
“It was traumatic,” Ms. Curry said. She now pays about $1,500 each month to
her creditors, nearly half her paycheck. She said she worried that her debt would
again threaten her ability to work.
“I really do want to pay the loans back,” she said. “How do you think I’m going
to be able to pay it back if I don’t have a job?”
Copyright 2017 The New York Times Company. All rights reserved.
ONCE AGAIN CONSUMERS LOSE TO BIG BUSINESS
Reuters reports that Richard Cordray, directors of the Consumer Financial Protection Bureau, will step down at the end of the 
month. Those companies (banks, auto finances, pay day loans and student loans, to name a very few) are ecstatic because this opens the door for Trump to nominate a CFPB head who will go easier on these industries. Several of these companies, as student loan servicer Navient (NAVI.O) and lender TCF National Bank (TCF.N), already have gone to court to fend off large fines while Cordray – renowned for imposing steep penalties- is still in place.
By Corday stepping down this gives companies being pursued by the CFPB for alleged predatory lending practices added incentive to stall settlement talks until Republican President Donald Trump puts his own appointee in place, lawyers and analysts say.
Commentary: How Trump is making it easier to exploit consumers
Richard Cordray, who has been the head of the U.S. Consumer Financial Protection Bureau (CFPB) since 2012, announced Wednesday that he will be resigning before the end of his five-year term. His interim replacement will be self-described “right-wing nutjob” Mick Mulvaney.
Currently the Trump administration’s Office of Management and Budget Director, Mulvaney is a longtime politician who has tirelessly worked to dismantle regulations and, as CBS News notes, “a longtime critic of the agency.” Nominating Mulvaney, in other words, is functionally equivalent to eliminating the agency entirely.
Share this entry
About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. As a teacher and retired law professor, Diane believes in offering everyone, not just her clients, advice about the Arizona bankruptcy and foreclosure laws. She is also a mentor to hundreds of Arizona attorneys.
I would be flattered if you connected with me on GOOGLE+
*Important Note from Diane: Everything on this web site is available for educational purposes only, is not intended to provide legal advice nor create an attorney client relationship between you, me, or the author of any article. Any information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
The post Beware Consumers No Longer Protected, Big Business Wins Again appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
By Michael Corkery and Jessica Silver Greenberg
The Toys “R” Us world headquarters are on a sprawling wooded campus next to a
reservoir in Wayne, N.J., on a street that bears the name of the company’s iconic
mascot, Geoffrey the giraffe.
But in September, when Toys “R” Us filed for one of the largest bankruptcies of
the year, it did not go to nearby Newark.
Instead, the toy company followed an increasing number of corporations —
from Gymboree to a major coal company to a Pennsylvania fracking company — that
are choosing to file for bankruptcy in Richmond, Va.
In recent years, Richmond has become the destination wedding spot for failed companies. The United States Bankruptcy Court there offers several features attractive to the executives, bankers and lawyers trying to get an edge in the proceedings.
First, Richmond’s bankruptcy court offers a so-called rocket docket that moves cases along swiftly. Chapter 11 bankruptcy filings can be laborious proceedings that drag on for years. Gymboree’s bankruptcy was completed in less than four months.
Second, the legal record in that court district includes precedents favorable to
companies, like making it easier to walk away from union contracts.
But perhaps one of the biggest draws, according to bankruptcy lawyers and
academics, is the hefty rates lawyers are able to charge there. The New York law firm
representing Toys “R” Us, Kirkland & Ellis, told the judge that its lawyers were
charging as much as $1,745 an hour. That is 25 percent more than the average
highest rate in 10 of the largest bankruptcies this year, according an analysis by The
New York Times.
“The numbers are stratospheric,” said Kevin Barrett, a lawyer at the firm Bailey
Glasser, who represented the State of West Virginia in two coal bankruptcy cases
filed in Richmond.
Companies can file for bankruptcy in a court district where they have an affiliate
— a loophole that allows them to shop for the court they think will provide the best
outcome.
For an affiliate to be incorporated in Virginia, it can use a “registered agent”
with a local address, according to the state. For its bankruptcy filing, state records
show, Toys “R” Us used a Richmond affiliate whose registered agent has an office in
downtown Richmond.
Representatives for Kirkland & Ellis and Toys “R” Us declined to comment for
this article. So did a spokesman for the federal bankruptcy court in Richmond.
It’s not just the lawyers who stand to gain from the Toys “R” Us bankruptcy. The
bankers and other professionals who helped arrange $3.1 billion in new debt to keep
the company operating in bankruptcy will collect $96 million in fees, according to a
court document filed by Toys “R” Us.
Executives at bankrupt companies typically agree to the high fees, bankruptcy
experts say, because they think the cost will have been worth it if the lawyers and
bankers can save their business. Kirkland & Ellis has a long track record of getting
companies back on their feet in bankruptcy.
The two judges in Richmond are also known for their expertise. “The judges understand the complexities of large corporate bankruptcies and can handle cases expeditiously,” said Dion Hayes, a local bankruptcy lawyer.
Still, the huge fees can eat into the money that is left over for small creditors —
typically vendors, suppliers and pensioners.
In the Toys “R” Us case, dozens of suppliers of scooters, rubber duckies and
teething rings could lose millions in the bankruptcy.
Linda Parry Murphy, chief executive of Product Launchers, a distributor for
several small toy suppliers, said her clients were owed about $1.2 million from Toys
“R” Us. She worries that they may recover as little as $120,000.
“For some of these clients it was very devastating,” she said.
Nationally, professional fees for bankruptcies have been increasing about 9.5
percent a year, about four times the rate of inflation, according to Lynn LoPucki, a
bankruptcy professor at the University of California, Los Angeles.
Mr. LoPucki said the higher fees were fueled, in part, by court shopping. Lawyers advising troubled companies tend to gravitate to courts that approve their fees, he said. Judges who balk at high fees see far fewer cases.
“They become pariah courts,” Mr. LoPucki said.
Down the road, creditors in the Toys “R” Us bankruptcy can challenge how
many hours the lawyers bill at the high rates. Another check on the costs is the
United States Trustee Program, which helps oversee the process and can object if the
legal bill seems unreasonable.
The vast majority of companies — more than 76 percent — now file for
bankruptcy in a different state from where they are based, Mr. LoPucki said.
Delaware and New York — which have long been popular bankruptcy
destinations — still see the lion’s share of the filings.
But Richmond is gaining ground. In July, an article in The Virginia Lawyers Weekly declared the city a “bankruptcy haven” and quoted a local lawyer who said the high legal fees charged there would give judges in other courts a “heart attack.”the high legal fees charged there would give judges in other courts a “heart attack.”
Then in September, the court landed the Toys “R” Us bankruptcy.
Toys “R” Us started out in 1948 as a company that sold cribs and strollers out of
the ground floor of a house in Washington, D.C.
It expanded into the world’s leading toy retailer with about 2,000 stores and an
advertising jingle — “I Don’t Want to Grow Up, I’m a Toys ‘R’ Us Kid” — that could
stick in its customers’ heads like glue.
Seeing opportunity in a consolidated toy industry, the private equity investors
Bain Capital and Kohlberg Kravis Roberts and the real estate firm Vornado Realty
Trust bought the company in 2005 and loaded it up with debt that today stands at
$5.3 billion. It was a burden that proved too much to overcome.
Toys “R” Us has dozens of affiliates around the globe employing 64,000 people.
But when it came time to file for bankruptcy, the company opted for Richmond,
where its law firm, Kirkland & Ellis, had success in the past.
The law firm had represented Patriot Coal, a coal miner based in West Virginia
that filed for bankruptcy twice in four years, most recently in Richmond in 2015.
In that case, the most profitable mines went to another coal company backed by
Patriot’s lenders, while the others were closed.
Mr. Barrett, the lawyer who represented the State of West Virginia in that case,
was stunned by the fees.
“I remember five lawyers in one meeting, and I joked that meeting cost
$10,000,” he said.
This year, Kirkland worked on another bankruptcy case in Richmond —
Gymboree, the children’s clothing retailer, based in San Francisco.
Like Toys “R” Us, Gymboree was owned by private equity and was weighed siwn bt debt.
After emerging from bankruptcy in September, the company closed 350 of its
stores across the country, but the retailer is still in business.
The Toys “R” Us bankruptcy case kicked off in September at a packed hearing.
Kirkland & Ellis set the stage by playing the Toys “R” Us theme song for the judge.
The toy company, the lawyer explained, had tried to turn around its business.
But it couldn’t afford to sufficiently spruce up its stores and compete with retailers
like Walmart and Amazon because it had billions of dollars in debt. He emphasized
how Toys “R” Us had brought joy to many children and how the bankruptcy process
would help the company survive.
“We are all Toys ‘R’ Us kids,” he said.
Copyright 2017 The New York Times Company. All rights reserved.
Updated daily, this blog will keep you informed on the latest bankruptcy news! 
Learn more about how Bankruptcy works and what you need to know.