Lawmakers Race to Finish $900 Billion Covid-19 Aid Package

Lawmakers Race to Finish $900 Billion Covid-19 Aid Package

ABI Bankruptcy Brief

December 17, 2020

ABI Bankruptcy Brief

Lawmakers Race to Finish $900 Billion Covid-19 Aid Package

Lawmakers and the White House face a rapidly approaching deadline to wrap up negotiations on another coronavirus relief bill, racing today to complete the details of the roughly $900 billion package and pass it through Congress before the end of the week, the Wall Street Journal reported. Top Republicans and Democrats are closing in on a relief package that would send another direct check to many Americans, enhance unemployment benefits, provide aid to small businesses and fund the distribution of the Covid-19 vaccine, among other measures. Because they are planning to approve a relief bill alongside a broad government spending package, they are sprinting to finish the relief bill before current government funding expires at 12:01 a.m. Saturday. Forms of unemployment assistance and other relief measures will expire in the coming weeks without congressional action. As of yesterday, lawmakers were still discussing the duration of a $300 weekly boost to unemployment benefits and whether to include $90 billion in emergency aid for the Federal Emergency Management Agency. But negotiations on a long-discussed relief package eased this week when Republicans and Democrats dropped the two most contentious issues from the proposed package: aid for state and local governments, and enhanced liability protections for businesses, schools and health care providers.(Subscription required.)

In related news, ABI yesterday sent a letter to congressional leadership requesting Congress to make it clear in any future amendments or legislation addressing Paycheck Protection Program (PPP) funding that debtors who have filed bankruptcy cases remain eligible for PPP loans, notwithstanding their respective bankruptcy filings. “ABI is not advocating that Congress mandate PPP assistance to any particular borrower, or category of borrowers, in a case pending under the Bankruptcy Code,” ABI Executive Director Amy Quackenboss writes in the letter. “However, it is imperative that bankruptcy debtors remain eligible for PPP funding if they otherwise satisfy the borrowing requirements. PPP funding may facilitate a successful reorganization under the Bankruptcy Code, and it certainly facilitates the PPP’s goals, which include the preservation of paying jobs.” Click here to read ABI’s letter.

Commentary: Bankruptcy Is the Solution to the Student Loan Crisis*

To understand why we have a student loan crisis — and with $1.6 trillion in outstanding student debt, it surely is a crisis — just look at the Bankruptcy Code, according to a Bloomberg commentary. In 1965, Congress passed the Higher Education Act, part of President Lyndon Johnson’s Great Society. On the one hand, the new law established federal grants and loan programs to ease the monetary burden of attending college, especially for disadvantaged students. On the other hand, the bill included rules that made it difficult to discharge a federal student loan in bankruptcy. Over the next four decades, Congress added additional restrictions that made it not just difficult but impossible to shed a federal student loan, no matter how dire a borrower’s circumstances. In 2005, Congress crossed the final frontier: It added privately issued student debt to its no-discharge list. Nearly one out of five former students is in default, according to the Pew Research Center. The student loan burden has been debilitating for millions of people who had hoped that taking on that debt would lead to a better life, only to discover that, for one reason or another, it didn’t. But there is another largely unacknowledged consequence of outlawing the discharge of student loans in bankruptcy: It ushered in a lot of moral hazard, according to the commentary. The student loan industry is built on a similar premise that caused the subprime housing bubble, when brokers sold homes to anyone, knowing that their firms would offload the loans to Wall Street, so they didn’t care whether the borrowers would ever repay the money, according to the commentary. While student loan forgiveness legislation has been floated, the commentary advocates for passing a law that allows student loans to be included in a bankruptcy filing as an obvious compromise. It doesn’t give either side everything it wants, but it gives each of them enough to make it an acceptable solution.

*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.

Jobless Claims Increase for the Second Week in a Row, Highest Level Since Labor Day

An estimated 885,000 people applied for unemployment aid for the first time last week — a second consecutive week of increased claims, and a high not seen since the end of the summer, as negotiations for stimulus funding continue in Washington, D.C., the Washington Post reported. Economists have warned that a lack of aid for the unemployed and small businesses, since Congress let some stimulus programs expire over the summer, is dragging down the economy, jeopardizing the fragile recovery of the labor market as the country heads into a bleak winter of increasing coronavirus infections. There were 455,000 new claims for the Pandemic Unemployment Assistance program for gig and self-employed workers. And about 20.6 million people were counted on the unemployment rolls as of the week ending Nov. 28, although officials say that number is inflated by duplicate claims and other issues stemming from backlogs in state unemployment systems.

Workers Tap Retirement Savings as a Last Resort

Since the pandemic began rippling through the economy in March, more than 2.1 million Americans have pulled money from retirement plans at the five largest 401(k) plan administrators: Fidelity, Empower Retirement, Vanguard, Alight Solutions and Principal, the New York Times reported. These workers, especially those in hard-hit industries like transportation, manufacturing and health care, have been helped by more flexible withdrawal rules created by the CARES Act. Even with millions unemployed and the economy’s recovery shaky at best, that’s only about 5 percent of the eligible 401(k) and 403(b) clients across all of those companies. But that’s still higher than in a more typical year, when many participants can still generally withdraw money for hardships, albeit under a stricter set of rules. The various federal relief programs put into place — including stimulus payments, more generous unemployment benefits and the suspension of federal student loan payments — have helped curb the damage, retirement experts said. But some of those programs have already run out, or could soon. “As these start to expire, there may be an uptick in withdrawals for households that have been financially impacted,” said David Fairburn, associate partner at Aon, a professional services firm that provides retirement consulting. “For example, maybe an active employee’s spouse had a job loss, so a withdrawal would be helpful to make up for the lost household income.” Usually, pulling out money from a tax-deferred account before age 59½ would set off a 10 percent penalty on top of any income taxes. But under the temporary rules part of the CARES Act, people with pandemic-related financial troubles can withdraw up to $100,000 from any combination of their tax-deferred plans, including 401(k), 403(b), 457(b) and traditional individual retirement accounts, without penalty. The rules apply to plans only if your employer opts in, and they expire on Dec. 30.

For the Retail Industry, 2020 Was a Wild Ride

Changes have been coming to the retail sector for years. But in 2020, with the onslaught of the Covid-19 pandemic, the industry received a ticket to the Fury 325 roller coaster, according to a Wall Street Journal analysis. Perhaps the most surprising part of the 2020 retail experience was that through November, retail sales (excluding gas, auto and food services) rose 6.6 percent from the year-earlier period, according to the National Retail Federation’s analysis of U.S. Census Bureau data. Oddly, 2020 could turn out to be one of the best years in the overall retail sector in the past 20 years. The industry did experience a precipitous dip in April, with a sharp drop in sales of 5.5 percent, including a startling plunge in apparel sales of more than 86 percent. But concurrently, food-and-beverage store revenues were up nearly 27 percent. Losses and gains in these two sectors have been persistent throughout the year, as a dressed-down population focuses on just the essentials for their families and homes. In many cases, traditional or overleveraged retailers struggled to navigate through the uncertainties. More than 27 retailers declared bankruptcy in the first nine months of the year, including Lord & Taylor, JCPenney, Neiman Marcus and J. Crew. In January, before the coronavirus swept across the U.S., just over 15% of retail sales occurred outside of physical stores. That number spiked to about 20 percent of sales in April, and has since leveled back to about 16 percent of sales in the three months ended in September.

Falling Behind on Weekly Rent and Afraid of Being Evicted

Low-budget weekly rental lodgings — furnished units with limited cooking facilities that typically rent for around $200 a week — are often the housing of last resort for people on government assistance or those living from paycheck to paycheck. They usually cannot qualify for more traditional apartments because they have a recent eviction on their credit history or don’t have the money saved for a security deposit, the New York Times reported. Few such residents can afford to hire a lawyer if faced with eviction. In September, the Centers for Disease Control and Prevention imposed a four-month eviction moratorium to prevent landlords from removing tenants who present a signed declaration stating they can’t pay rent because of the pandemic. But the moratorium has sparked confusion when it comes to weekly rentals, which fall into a gray area of the housing market because they function like temporary apartments but are often licensed as motels — which are technically exempt from the moratorium. Taking advantage of the confusion, some owners of weekly rental lodgings aren’t waiting around for the moratorium to expire at year’s end to push out people who cannot pay the rent.

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New on ABI’s Bankruptcy Blog Exchange: The Consumer Bankruptcy Reform Act of 2020

Sens. Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill) and Sheldon Whitehouse (D-R.I.), along with Representatives Jerrold Nadler (D-N.Y.) and David Cicilline (D-R.I.), introduced the Consumer Bankruptcy Reform Act of 2020. This is the first major consumer bankruptcy reform legislation to be introduced since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), according to a recent blog post. Whereas BAPCPA introduced a number of major, but targeted, reforms to consumer bankruptcy law (and a few business bankruptcy provisions as well), the CBRA is a much more ambitious bill: It proposes wholesale reform of the structure of consumer bankruptcy law, with an eye toward reducing the costs and frictions that prevent consumers from being able to address their debts in bankruptcy.

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

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