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Consumer Bankruptcy News

Frozen But Not Forgiven, U.S. Student Loans Are Coming Due Again Soon

For millions of Americans, there’s an unwelcome side of the return to business-as-usual after the pandemic: They’ll have to start repaying their student loans again, Bloomberg News reported. More than 40 million holders of federal loans are due to start making monthly installments again on Oct. 1, when the freeze imposed as part of COVID-19 relief measures is due to run out. It covered payments worth about $7 billion a month, the Federal Reserve Bank of New York estimated. Their resumption will eat a chunk out of household budgets, in a potential drag on the consumer recovery. Americans now owe about $1.7 trillion of student debt, more than twice the size of their credit-card liabilities. Politicians recognize it’s not sustainable. Yet for all the talk of loan forgiveness during last year’s election campaign — including from President Joe Biden, who promised to write off at least $10,000 per borrower — there’s been no progress toward shrinking the pile.

Millions of Americans Could Face Eviction as Housing Protection Expires in June

More than 11 million Americans are behind on their rent and many could be pushed from their homes when the national eviction ban expires in June, reported. The Centers for Disease Control and Prevention’s eviction moratorium, which has been in effect since September, will lift on June 30. Although the policy has been far from perfect at keeping renters housed, it’s reduced the normal number of eviction filings over the same time period by at least a half, according to Peter Hepburn, an assistant professor of Sociology at Rutgers University-Newark and research fellow at The Eviction Lab. Experts say the number of evictions could skyrocket when the ban lifts. Around 15% of adult renters are not current on their housing payments, according to an analysis by The Center on Budget and Policy Priorities.

U.S. Bans Seafood Imports From Chinese Company, Citing Use of Forced Labor

The U.S. banned imports of tuna, swordfish and other seafood from a Chinese fishery company, citing evidence of forced labor on its distant-water vessels, the Wall Street Journal reported. U.S. Customs and Border Protection agents will detain shipments containing seafood harvested by China’s Dalian Ocean Fishing Co., officials said, in the latest example of Washington confronting Beijing over human-rights issues. “We have found evidence of all 11 forced labor indicators, including physical violence against fishers, debt bondage, withholding of wages and abusive living and working conditions,” Troy Miller, CBP’s senior official performing the duties of the Commissioner, told reporters Friday.

Overdue VHS Tape from 1999 Leads to Warrant for Embezzlement

Video rental stores, pushed closer to the brink of extinction by streaming services like Netflix and changing technology, may be a thing of the past but an overdue rental became an issue of the present for a Texas woman, The New York Times reported. The woman, who was identified in court records as Caron Scarborough Davis, recently learned that there was a 21-year-old outstanding warrant for her arrest in Oklahoma. Her offense? Prosecutors said that Ms. Davis had failed to return a copy of “Sabrina the Teenage Witch,” a television sitcom that aired from 1996 to 2003. She rented the tape of episodes from a video store in Norman, Okla., in 1999. She was charged with embezzlement of rented property, and a warrant was issued for her arrest in March 2000. The store where she rented the tape, Movie Place, closed in 2008, according to KOKH Fox 25 in Oklahoma. In a charging document, prosecutors said that Davis “did willfully, unlawfully and feloniously embezzle a certain One (1) Videocassette Tape, Sabrina the Teenage Witch of the value of $58.59.” Davis discovered the outstanding warrant for her arrest after she got married and tried to change her name on her driver’s license. She said motor vehicle officials referred her to the district attorney’s office for Cleveland County, Okla., where a woman explained the charge against her. On April 21, prosecutors dropped the embezzlement charge against Davis in consideration of the “best interest of justice,” according to court documents.

Analysis: Pandemic Pushes Mall Department Stores to the Edge of Extinction

Department stores, once a middle-class mainstay of convenience and indulgence, had been spiraling downward long before the pandemic turbocharged online shopping and helped tip a number of big-name retailers into bankruptcy. Nearly 200 department stores have disappeared in the past year alone, and another 800 — or about half the country’s remaining mall-based locations — are expected to shutter by the end of 2025, according to commercial real estate firm Green Street Advisors, the Washington Post reported. Those closures, analysts say, will have a cascading effect on American shopping malls, which already are battling record-high vacancy rates and precipitous drops in foot traffic, as well as on the commercial real estate market and the broader economy. The pandemic set off an economic chain reaction that rippled through the country’s department store chains, forcing several into chapter 11 proceedings. Neiman Marcus, Stage Stores and J.C. Penney filed for bankruptcy last May, followed by Lord & Taylor and, most recently, Belk in February. Even companies on relatively stable footing, like Macy’s, are shuttering dozens of stores as they try to move away from traditional shopping malls. Overall sales at department stores plunged more than 40 percent at the beginning of the pandemic and have yet to make up for lost ground, according to Commerce Department data, as Americans do more of their shopping online and gravitate to specialty brands and discount chains.

Casa Bonita Files for Chapter 11 Protection

A popular Colorado landmark has filed for bankruptcy amid the crippling COVID-19 crises. Casa Bonita has filed for chapter 11 protection. Summit Family Restaurants, the company that owns the Lakewood restaurant, filed for chapter 11 protection in Arizona on April 6, according to court documents obtained by Denver7. The documents did not specify the exact amount of debt the company owes. However, the filing states that the company’s noncontingent liquated debts are below $7.5 million. Casa Bonita has been closed during the pandemic, but recently announced that they would be reopening soon. No additional details were provided. In November 2020, Denver7 spoke to Bob Wheaton, the president of Summit Family Restaurants. At the time there were rumors the popular spot wouldn’t reopen, but Wheaton assured that wasn’t the case.

The Mortgage Market Is Roaring, But Lots of People Can’t Get a Loan

The mortgage market is humming, but getting approved for a home loan is as difficult as it has been in years, the Wall Street Journal reported. Mortgage credit availability, a measure of lenders’ willingness to issue mortgages, is near its lowest level since 2014, according to the Mortgage Bankers Association, or MBA. The tight lending environment illustrates a growing cleavage in the mortgage market: More home loans are being made than almost ever before, but they are going almost exclusively to borrowers with pristine credit histories and sizable down payments. Borrowers with credit qualifications that fall just outside the stellar category are finding fewer lenders willing to approve their applications. A segment of borrowers who would have qualified for a home loan early last year are now out of luck, deemed too much of a credit risk. “Because mortgage credit is more difficult to obtain, it is a more competitive environment overall,” said Dr. Lawrence Yun, chief economist at the National Association of Realtors. About 70% of mortgages issued in 2020 went to borrowers with credit scores of at least 760, up from 61% in 2019, according to the Federal Reserve Bank of New York. The median credit score of borrowers approved for mortgages reached 786 in the fourth quarter of 2020, up from 770 during the same period in 2019.

Black Jewel Gets to Walk Away Without Cleaning Up Its Coal Mining Mess

The Blackjewel coal mining company can walk away from cleaning up and reclaiming coal mines covered by more than 30 permits in Kentucky under a liquidation agreement reached Friday in federal bankruptcy court in Charleston, West Virginia, the Louisville Courier Journal reported. About 170 other Blackjewel permits in Kentucky, Tennessee, Virginia and West Virginia will be placed into legal limbo for six months while Blackjewel attempts to sell them to other coal mining companies, attorneys said. Any permits that are unable to be transferred can then also be abandoned by the company, once the nation’s sixth-largest coal producer. The Kentucky Energy and Environment Cabinet was preparing a written statement on the decision late Friday but a spokesman said it was not immediately available and declined to comment. Thousands of acres of mountainous land in Kentucky alone have been disturbed by strip mining allowed by the permits that were before the judge. Both the state and the companies that issued bonds guaranteeing clean-up and reclamation of the dynamite-blasted landscapes had warned in court proceedings that there might not be enough money to do all the required work.

CFPB Takes Action Against Operators of An Unlawful Student Loan Debt-Relief Scheme

The Consumer Financial Protection Bureau (CFPB) yesterday sued a student loan debt relief company, its owner, and manager for allegedly charging thousands of consumers more than $3.5 million in illegal upfront fees. The lawsuit filed in federal district court accuses California-based Student Loan Pro, Judith Noh, and Syed Gilani of violating the Telemarketing Sales Rule (TSR). FNZA Marketing, LLC, is also named as a relief defendant. Student Loan Pro, which operated from 2015 through 2019, provided federal student loan debt-relief services to consumers nationwide. The CFPB alleges that the company charged borrowers the illegal upfront fees to file paperwork on their behalf to access free debt-relief programs available to consumers with federal student loans. The CFPB’s lawsuit seeks monetary relief for consumers, and asks the court to end the illegal conduct.

Student-Loan Servicer Navient Dodges Borrowers’ Involuntary Bankruptcy Petition

The judge overseeing the bankruptcy case filed against Navient Corp.’s student-loan servicing arm dismissed the involuntary petition, saying there was no evidence the student-loan giant isn’t paying its debts, WSJ Pro Bankruptcy reported. Three individuals who allege that Navient improperly collected on their student debt even after they discharged it through their own personal bankruptcies had filed an involuntary chapter 11 petition against Navient Solutions LLC earlier this month. Judge Martin Glenn of the U.S. Bankruptcy Court in New York ruled yesterday that since the debts are part of the individuals’ claims that are still being disputed, with some subject to ongoing litigation, the borrowers had no basis to assert that Navient had failed to refund the alleged overpayments. “The proper place for that litigation to proceed is in the courts grappling with those issues, and not by jumping the queue with this involuntary petition,” Judge Glenn said.

‘Staggering’ Legal Fees in Boy Scouts Bankruptcy Case

As the Boy Scouts of America goes through a contentious bankruptcy, dozens of lawyers are working on the case. Many are charging more than $1,000 an hour. One lawyer negotiating a resolution to the multi-billion-dollar bankruptcy filed by the Boy Scouts of America billed $267,435 in a single month. Another charged $1,725 for each hour of work. New lawyers fresh out of law school have been billing at an hourly rate of more than $600.

CFPB Takes Action Against Debt-Settlement Company for Charging Consumers Unlawful Fees

The Consumer Financial Protection Bureau (CFPB) requested yesterday that a federal district court enter a final judgment and order that, if entered by the court, would require DMB Financial, LLC to pay consumers at least $5.4 million for charging unlawful fees and failing to provide required disclosures to its customers, and a civil penalty, according to a press release. The CFPB alleges that DMB’s actions violated the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA).

Fed: Nearly One-Fourth of Americans Ended 2020 Worse Off Financially

Nearly one-quarter of Americans ended 2020 worse off financially than they were 12 months ago, according to results from a Federal Reserve survey released yesterday, The Hill reported. A survey conducted by the Fed in November found that 24 percent of Americans said their financial standing took a hit amid the pandemic, 10 percentage points higher than at the end of 2019. The percentage of Americans reporting a decline in their finances was the highest recorded by the Fed’s annual Survey of Household Economics and Decisionmaking (SHED) since 2014.

Need a Credit Card or Auto Loan? Banks Are Making Them Easier to Get

Credit cards, auto loans and other personal loans are all getting easier to come by, more than a year into a pandemic that spooked lenders and caused them to tighten lending standards significantly, the Wall Street Journal reported. The net share of banks that loosened underwriting standards for credit cards hit a high in roughly the first quarter, according to a survey of loan officers conducted by the Federal Reserve. The net share of banks relaxing underwriting on other consumer loans such as installment loans also notched a record. For auto loans, that share was the highest level in more than eight years.

Hedge-Fund Founder Kamensky Gets Prison Sentence for Fraud Tied to Neiman Bankruptcy

Hedge-fund founder Dan Kamensky was sentenced to six months in prison for bankruptcy fraud over his attempt to quash a rival bid for shares of a Neiman Marcus Group Ltd. business that he wanted to buy himself, WSJ Pro Bankruptcy reported. The sentence, handed down in a federal courtroom in New York, falls short of the 12- to 18-month prison term sought by prosecutors but exceeds the punishment sought by Kamensky’s lawyers, who asked that he only be put on probation and be required to do community service.

Zoom-zoom. California Man Fraudulently Obtained $5M in COVID Relief Loans to Purchase Ferrari, Bentley and Lamborghini, Authorities Say

A Southern California man was arrested on federal charges on Friday after federal authorities say he fraudulently obtained millions of dollars through coronavirus relief funds to buy luxurious cars, take lavish vacations and cover personal expenses, USA Today reported. Mustafa Qadiri, a 38-year-old resident of Irvine, Calif., located nearly 40 miles southeast of Los Angeles, obtained approximately $5 million in Payment Protection Program funds after claiming to own four businesses in nearby Newport Beach, none of which are currently in business, according to a federal indictment.

Qadiri submitted claims for All American Lending, Inc., All American Capital Holdings, Inc., RadMediaLab, Inc., and Ad Blot, Inc. in May and June 2020 with altered bank accounts, fake federal tax return forms and someone else’s identity, according to the U.S. Attorney’s Office of California. He then, the indictment adds, used the money he received to spend on vacations, personal expenses, and Ferrari, Bentley and Lamborghini sports cars. All cars and $2 million from Qadiri’s bank account were seized by federal agents when he surrendered himself to authorities on Friday morning. He is charged with six counts of money laundering, four counts of bank fraud and wire fraud and one count of aggravated identity theft.

CFPB Opens Probe on Wells Fargo’s Mishandling of Accounts

Wells Fargo and Co. is facing a new probe from the U.S. consumer watchdog over how it disclosed and assessed monthly fees on certain consumer bank accounts in 2016, the bank disclosed in a regulatory filing yesterday, Reuters reported. The Consumer Financial Protection Bureau (CFPB) is “investigating certain of the Company’s past disclosures to customers regarding the minimum qualifying debit card usage required for customers to receive a waiver of monthly service fees on certain consumer deposit accounts,” the bank said. The probe is the latest regulatory hurdle for the San Francisco-based lender, which has been mired in scandal related to unauthorized product sales since it revealed here in 2016 that it had opened potentially millions of depository and credit card accounts without clients’ permission.

Anonymous Messages Calling the Debtor a Philanderer Isn’t a Stay Violation

Sending anonymous text messages and emails alleging that the debtor engaged in “numerous extramarital affairs” does not violate the automatic stay, even if the sender is a creditor, according to Bankruptcy Judge Karen S. Jennemann of Orlando, Fla.

Judge Jennemann granted summary judgment in favor of the creditor, saying that the communications weren’t intended to coerce payment of a debt but were “communications . . . sent by a spurned romantic partner.” Granting summary judgment allowed Judge Jennemann to avoid holding a trial to decide whether the creditor had actually sent the messages.

Judge Voids U.S. Moratorium on Evicting Renters During Pandemic

A federal judge yesterday threw out the U.S. Centers for Disease Control and Prevention’s nationwide moratorium on evictions, a setback for the millions of Americans who have fallen behind on rent payments during the coronavirus pandemic, Reuters reported. U.S. District Judge Dabney Friedrich said that while there was “no doubt” Congress intended to empower the CDC to combat COVID-19 through a range of measures such as quarantines, a moratorium on residential evictions was not among them. Friedrich cited the “plain language” of a law called the Public Health Service Act, which governs the federal response to the spread of communicable diseases, even while acknowledging that the pandemic is “a serious public health crisis that has presented unprecedented challenges for public health officials and the nation.”

Toys ‘R’ Us Creditors Call for Jury Trial on Executive Stay Pay

Bankruptcy administrators for defunct retailer Toys “R” Us Inc. are trying to put its former top leaders on trial before a jury over the millions of dollars in bonuses they pocketed days before the company’s plunge into bankruptcy, the Wall Street Journal reported. The proposed jury trial concerns the practice of corporate executives collecting bonuses shortly before their businesses file for bankruptcy, leaving debts unpaid and employees at risk.

While the Toys “R” Us bonus payments occurred in 2017, a range of businesses paid similar bonuses during the COVID-19 pandemic as they teetered on the brink of bankruptcy. Companies including rental-car giant Hertz Global Holdings Inc., department store chain J.C. Penney Co. and oil-and-gas driller Chesapeake Energy Corp. all dispensed bonuses shortly before they filed for bankruptcy last year as COVID-19 upended the U.S. economy.

On Dismissal of a ‘13,’ Barton May (or May Not) Bar Garnishments

If a chapter 13 case has been dismissed before confirmation, the Tenth Circuit Bankruptcy Appellate Panel seems inclined to allow judgment creditors to garnish funds that the trustee would otherwise return to the debtor.

The nonprecedential opinion on April 27 by Bankruptcy Judge Michael E. Romero includes an in-depth survey of the split on Section 1326(a)(2) and questions like the right of a chapter 13 trustee to collect a fee when dismissal occurs before confirmation. The opinion examines decisions going both ways on the right of creditors to garnish funds held by the trustee on dismissal of a chapter 13 case.

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