Commentary- The Small Business Reorganization Act Arrives in February 2020; Here's What You Need to Know

Commentary- The Small Business Reorganization Act Arrives in February 2020; Here's What You Need to Know

ABI Bankruptcy Brief

September 12, 2019

ABI Bankruptcy Brief

Commentary: The Small Business Reorganization Act Arrives in February 2020; Here's What You Need to Know

With President Trump’s signature on Aug. 23, the "Small Business Reorganization Act of 2019" (SBRA) will officially take effect in February 2020. The SBRA is designed to fill a gap in the current bankruptcy laws by providing a framework for small businesses to successfully reorganize in bankruptcy court, according to a recent commentary in the National Law Review. Under the SBRA, the Bankruptcy Code will be amended to ease the procedural burden on small businesses seeking reorganization. The SBRA amends the Bankruptcy Code with the addition of a new subchapter V to chapter 11, defining a small business debtor as an entity with an aggregate of noncontingent liquidated secured and unsecured debt of not more than $2,725,625. The SBRA mandates that a standing trustee be appointed in every small business chapter 11, similar to the existing statutes for chapter 12 and chapter 13. Among other provisions, the new subchapter will now allow a small business to confirm a plan over the objections of creditors, which is a significant change and should greatly increase the overall success rate for small businesses.

Also, don't miss the ABI Talk at the Winter Leadership Conference on Dec. 6, "New Reorganization Hope for Main Street Debtors," to be delivered by Bankruptcy Judge Michelle Harner (D. Md.; Baltimore). Register here.

Student Borrowers ‘Preyed Upon’ by Loan Servicers, but Lawmakers Want to Change That

A House Financial Services Committee hearing on Tuesday tackled the issue of student lending and its ramifications for 45 million American student loan borrowers, reported. Both Democrats and Republicans on the committee agreed there are problems with the current student lending system. Specifically, lawmakers and consumer advocates criticized student loan servicing companies such as Navient, saying that student borrowers need more assistance and protections from these for-profit corporations. Democrats unveiled eight draft bills on Tuesday for discussion that would, among other things, establish a student borrowers’ bill of rights, strengthen credit-reporting standards, block debt collectors from unfairly going after student borrowers, protect private student loan borrowers and help borrowers with student debt purchase their first home. Seth Frotman, executive director of the Student Borrower Protection Center, says that student loan borrowers have a “bullseye” on their back and are subjected to “predatory tactics” from servicing companies from the day they take out their loan until the day they pay it back. He claims that’s because student borrowers have less rights than nearly any other type of borrower. “You have more protections if you’re paying back your credit card or your mortgage,” Frotman said.

The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy.

More Americans Going Without Health Coverage Despite Strong Economy, Census Bureau Finds

The proportion of Americans without health insurance grew significantly last year for the first time this decade, even as the economy’s strength pushed down the poverty level to its lowest point since 2001, according to federal data released on Tuesday, the Washington Post reported. The finding that 27.5 million U.S. residents lacked coverage in 2018, based on a large U.S. Census Bureau survey, reverses the trend that began when the Affordable Care Act expanded opportunities for poor and some middle-income people to get insurance. Taken together, the census numbers paint a portrait of an economy pulled in different directions, with the falling poverty rate coinciding with high inequality and the growing cadre of people at financial risk because they do not have health coverage. As more Americans found jobs, the poverty rate fell last year to its lowest level since 2001, and middle-class income inched marginally higher. Median U.S. income — the point at which half of U.S. families earn more and half earn less — topped $63,000 for the first time, although it was roughly the same level as it was 20 years ago, after adjusting for inflation.

An article in the Summer 2019 edition of the ABI Law Review found that individuals who experienced a gap in medical care coverage over a two-year period were roughly twice as likely to file for bankruptcy as those who retained continuous coverage. Click here to read the article. A forthcoming podcast will feature the authors, Profs. Brook E. Gotberg of the University of Missouri School of Law (Columbia, Mo.) and Prof. Michael D. Sousa of the University of Denver Sturm College of Law (Denver, Colo.), discussing their research.

U.S. Consumer Prices Rose 0.1 Percent in August

U.S. consumer prices rose slowly in August, held down by weak energy prices that masked a broader firming in price pressures, the Wall Street Journal reported. The consumer-price index, which measures what Americans pay for items from fresh whole milk to lawn-care services, rose a seasonally adjusted 0.1 percent in August from a month earlier, matching economists’ expectations. The sluggish pace of overall price growth largely reflected a decline in energy prices. Core consumer prices, which exclude the volatile categories of food and energy, increased 0.3 percent from the previous month. This marked the third straight monthly increase of 0.3 percent and an uptick from earlier in 2019. Prices for a wide array of goods and services rose last month. Rent and medical prices were among the drivers behind stronger inflation in August.

Need Cash? Companies Are Considering Magazine Subscriptions and Phone Bills When Making Loans

For decades, banks and other financiers have relied primarily on consumers’ borrowing history to make lending decisions. Now revenue-hungry companies are considering metrics both mundane and peculiar, like whether applicants shop at discount stores, subscribe to magazines or pay their phone bills on time, the Wall Street Journal reported. Those experimenting with new metrics range from big-name banks like Goldman Sachs Group Inc., Ally Financial Inc. and Discover Financial Services to upstart financial-technology firms. The changes are an about-face for many banks, which have spent much of the decade since the financial crisis chasing mostly ultra-creditworthy customers. But that pool is only so big. The field of potential new borrowers is huge: About 53 million U.S. adults don’t have credit scores, according to Fair Isaac Corp., creator of the widely used FICO scores. Another roughly 56 million have subprime scores. Some have a checkered borrowing history or high debt loads. But others, banks point out, just don’t have traditional borrowing backgrounds, often because they are new to the U.S. or pay for most expenses with cash. Government officials at times have encouraged or even required changes to the information in credit reports and scores, reasoning they would bring loans to deserving borrowers who might not fit a traditional mold.

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New on ABI’s Bankruptcy Blog Exchange: Specific Benefits Protected Under the HAVEN Act

A recent blog post explored the specific benefits protected under the Honoring American Veterans in Extreme Need Act of 2019 (HAVEN Act), which was signed into law by President Trump on Aug. 23.

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

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