Democratic Senators Push Bill Allowing Student Loans to Be Absolved in Bankruptcy

Democratic Senators introduced a bill today that would allow people to cancel student loan debt in bankruptcy if they can show income loss tied to economic fallout from the coronavirus pandemic, the Wall Street Journal reported. The measure from Sens. Sheldon Whitehouse (D-R.I.) and Sherrod Brown (D-Ohio) would allow student loan cancellations for people who either racked up large medical bills in the past three years or lost wages because of the coronavirus fallout. Republicans have expressed concerns that widespread student loan cancellations will cause the cost of higher education to rise, and earlier attempts to ease student loan restrictions for bankrupt borrowers have failed. Rising costs could make that education less accessible, according to those who oppose easing standards for forgiving student loan debt. A 1970s federal law requires people who take out student loans to prove an undue hardship in repaying their loans before canceling them. Over time, bankruptcy judges who have decided case by case have set a high bar. Only several thousand student-loan borrowers have tried to cancel their loans in recent years, despite more than $1.5 trillion worth of student-loan debt outstanding as of March, according to the Federal Reserve Bank of New York. Several earlier bills to ease student-loan restrictions for bankrupt borrowers have failed without support from Republicans. The bill from Sens. Whitehouse and Brown expands protections for people who file for bankruptcy, stating that people who lost income during the pandemic or because of a health care crisis should have easier access to a fresh financial start. It also has relief for homeowners who have equity in their property. The bill, called the Medical Bankruptcy Fairness Act, also has the backing of Sens. Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.) and Tammy Baldwin (D-Wis.).

Analysis: Ann Taylor Parent’s Bankruptcy Is the Scariest Yet

In the latest example of how the world of brick-and-mortar retail is being overwhelmed by the pandemic, specialty apparel conglomerate Ascena Retail Group Inc. — corporate parent of Ann Taylor, Lane Bryant and other chains —  filed for chapter 11 bankruptcy protection. Ascena may not have the cultural primacy of some of the other prominent names in the industry that have recently filed for bankruptcy, but make no mistake: Ascena’s bankruptcy is the scariest yet for the industry in the COVID-19 era, because the company’s collapse has the potential to create more devastating ripple effects than were caused by almost any of the other retail washouts that preceded it, according to an analysis in the Washington Post. Ascena had nearly 2,800 stores as of February, a staggeringly large portfolio that includes Loft and kids’ shop Justice. That makes it a highly important tenant for many mall operators. The company accounted for 4.7% of annualized base rent at Tanger Factory Outlet Centers Inc., according to that operator’s latest quarterly filing, a share that makes Ascena its second-largest tenant behind only Gap Inc. For Simon Property Group Inc., only Gap and Victoria’s Secret parent L Brands Inc. account for a greater share of annual base rent than Ascena. It is in the top 10 for Brookfield Property Partners and Acadia Realty Trust. Customers may have returned to stores at a faster clip than some retailers anticipated, but traffic generally remains at levels the industry was not built to sustain. Meanwhile, the U.S. is seeing an uptick in COVID-19 cases, and the June unemployment rate was 11.1%. That leaves clothing retailers in an especially difficult position — and it almost certainly means more of them will be joining Ascena in bankruptcy, according to the analysis.

Commentary: No More Blank Checks from Congress for Coronavirus*

A near-record 158.8 million Americans were employed in February, according to the Bureau of Labor Statistics. Then the novel coronavirus brought parts of the economy to a screeching halt. As of June, 142.2 million people were employed, a reduction of 16.6 million, or about 10.5%. Recent economic forecasts have predicted a decline in gross domestic product of between 4.6% and 8% for 2020. The damage from COVID-19 has been significant, but not catastrophic, according to a commentary in the Wall Street Journal. Congress authorized $2.9 trillion of COVID-19 relief, which represents 13.5% of 2019’s U.S. GDP. No one knows exactly how much of the COVID relief has been spent or obligated, but 60% ($1.75 trillion) seems to be a consensus figure in Congress. We’ve authorized enough spending to replace 13.5% of annual economic output, and more than $1 trillion of it hasn’t yet been spent or obligated. So why is Congress rushing to pass at least $1 trillion more? The House has passed an additional $3 trillion in COVID-19 relief, which would bring the total to $5.9 trillion, 27.5% of GDP. Again, employment has declined 10.5%, and respected estimates of GDP decline are 8% or less. Why should Congress provide financial support greater than the reduction in GDP? When Congress passed the $2.9 trillion in March, there was a great deal of uncertainty and a danger of economic collapse. Congress had to act quickly and demonstrate that sufficient financial support would be provided. But we’ve weathered that storm and now have much more information. We don’t know how much of the $2.9 trillion allocated for economic relief has been spent. Congress hasn’t conducted sufficient oversight of its previous handiwork. We shouldn’t authorize another dime until we do so, according to the commentary.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Commentary: The Sacklers Could Get Away with It*

The billionaire Sacklers, who own Purdue Pharma, maker of the OxyContin painkiller that helped fuel America’s opioid epidemic, are among America’s richest families. And if they have their way, the federal court handling Purdue’s bankruptcy case will help them hold on to their wealth by releasing them from liability for the ravages caused by OxyContin, according to a commentary in the New York Times. The July 30 deadline for filing claims in Purdue’s bankruptcy proceedings potentially implicates not just claims against Purdue, but also claims against the Sacklers, who may yet again benefit from the expansive powers that bankruptcy courts exercise in complex cases. So far, the bankruptcy court has granted injunctions stopping proceedings in several hundred lawsuits charging that Sackler family members directed the aggressive marketing campaign for OxyContin; it and other opioids have been implicated in the addictions of millions of patients and the deaths of several hundred thousand. The Sacklers have offered $3 billion in the hope that the bankruptcy court will impose a global settlement of OxyContin litigation. Under this settlement, all claims against the Sacklers, even by families who lost loved ones to opioids, would be forever extinguished. The Sacklers would walk away with an estimated several billion of OxyContin profits while leaving unresolved a crucial question asked by victims and their families: Did the Sacklers create and coordinate fraudulent marketing that helped make their best-selling drug a deadly national scourge? With that question left unanswered, many of those injured by OxyContin would feel victimized again, according to the commentary.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

U.S. Weekly Jobless Claims Unexpectedly Rise as Labor Market Takes Step Back

The number of Americans filing for unemployment benefits unexpectedly rose last week for the first time in nearly four months, suggesting the labor market was stalling amid a resurgence in new COVID-19 cases and depressed demand, Reuters reported. The weekly jobless claims report from the Labor Department today, the most timely data on the economy’s health, also showed that nearly 32 million people were collecting unemployment checks in early July. Relentless labor market weakness puts pressure on the U.S. Congress to extend a $600 weekly jobless benefit supplement, which expires on July 31. “There is no gradual and uneven recovery for the labor market,” said Chris Rupkey, chief economist at MUFG in New York. “Washington policymakers looking for signs that additional stimulus is necessary can judge for themselves with the millions and millions of jobless workers getting unemployment benefits. The economy cannot carry on for long if it has to drag almost 32 million unemployed workers with it.” Initial claims for state unemployment benefits increased 109,000 to a seasonally adjusted 1.416 million for the week ended July 18. That was the first rise in applications since the week ending March 28, when claims raced to a record 6.867 million as nonessential businesses like restaurants and gyms were shuttered to slow the spread of the coronavirus. “The risk from repeated business closures is that temporary job losses will become permanent,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “This could result in an even slower pace of recovery.”

Analysis: The Economy Usually Recovers Quickly Once Pandemics End

The COVID-19 pandemic has devastated the global economy. The World Bank’s Global Economic Prospects report for June forecasts that the world economy will shrink by an average of 5.2 percent in the coming year, making this the worst recession since World War II. It further predicts a decline in per capita income of 3.6 percent, bringing with it the threat of starvation to millions of the world’s poorest people. While the June jobs report in the U.S. was surprisingly good, with an unprecedented 4.8 million new jobs being added, the subsequent dramatic resurgence of the virus has led again to pessimism about the economy, as Congress begins work on another trillion-plus-dollar relief package to try to prop up the economy. But whatever passes, a period of acute economic hardship, potentially reaching catastrophic levels in some parts of the world, certainly seems to be inevitable, according to an analysis in the Washington Post. What will be the long-term effects? A historical perspective yields an unexpected insight into the question of the economic consequences of pandemics. Since the Black Death of the mid-14th century, no major pandemic appears to have had a long-lasting, negative economic impact, at least in Europe and North America. In fact, pandemics scarcely register in the standard economic histories, let alone get identified as major turning points. There is ample evidence that the short-term economic effects will be severe, although it is mere conjecture to know whether these consequences will endure. But even if they do, even if the coronavirus is the anomaly among pandemics in this respect, the more interesting question would be to ask: Why? Would it be because of the greater integration of the world economy? Or would it be because of the greater importance of the service sector?

National Mortgage Delinquency Rate Improves for First Time Since January

For the first time in five months, the national delinquency rate improved, falling to 7.6% in June as the number of past-due mortgages fell by 98,000, according to Black Knight, DSNews reported. This comes after the delinquency rate rose from 3.2% in January to 7.8% in May. Serious delinquencies — those 90 or more days past due — rose by more than 1.2 million as the initial batch of borrowers impacted by COVID-19 missed their third payment. The 1.87 million mortgages labeled as seriously delinquent is the highest level since early 2011. Active foreclosures continue to decline as foreclosure moratoriums are still in place. June’s 192,000 active foreclosures were the fewest on record dating back to 2000. Additionally, prepayment activity hit its highest level in 16 years in June, which Black Knight states is being fueled by record-low mortgage rates. Nationally, 13% of borrowers said they missed a payment vs. 11% in April.

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