Supreme Court Holds that Merely Holding Property Isn’t a Stay Violation

Reversing the Seventh Circuit and resolving a split among the circuits, the Supreme Court ruled unanimously today in City of Chicago v. Fulton “that mere retention of property does not violate the [automatic stay in] § 362(a)(3),” according to a special edition of Rochelle’s Daily Wire. Writing for the 8/0 Court in a seven-page opinion, Justice Samuel A. Alito, Jr. said that Section 362(a)(3) “prohibits affirmative acts that would disturb the status quo of estate property.” He left the door open for a debtor to obtain somewhat similar relief under the turnover provisions of Section 542, although not so quickly. In a concurring opinion, Justice Sonia Sotomayor wrote separately to explain how a debtor may obtain the same or similar relief under other provisions of the Bankruptcy Code. Justice Amy Coney Barrett, who had not been appointed when the argument was held on October 13, did not take part in the consideration and decision of the case. Click here to read the full analysis.

Click here to read the full Supreme Court opinion.

Commentary: Reform Our Bankruptcy Laws Before a Tsunami of COVID Debt Comes Due*

Even with the latest coronavirus relief bill, the economic stresses from the pandemic will continue to mount. An assortment of federal, state, and local foreclosure, eviction and debt-collection moratoria have kept creditors at bay, and unemployment insurance has helped many families to stay afloat. But neither the collection moratoria nor unemployment insurance will last forever, and they are likely to lapse as COVID-19 wanes. That’s when the bill will come due, according to a commentary by former ABI Resident Scholar Prof. Adam Levitin of Georgetown University Law School on CNBC.com. Collection moratoria merely stop collection actions; they do not cancel debts. Unemployment insurance typically replaces only a fraction of consumers’ income, so bills mount up when a consumer is out of a job. When the moratoria lapse, consumers will still owe months of back rent or mortgage payments, not to mention interest and late fees that have been accruing. Those debts will not go away as the economy picks up. Bankruptcy has long been the economy’s safety valve for financial distress. When consumers get overloaded with debt, bankruptcy gives them the possibility of a fresh start and serves as a type of social insurance by spreading losses among creditors. Unfortunately, however, the bankruptcy system poses too many obstacles to consumers getting the immediate relief they need, according to Prof. Levitin. Recently introduced legislation cosponsored by Sen. Elizabeth Warren (D-Mass.) would correct these shortcomings with a wholesale reform of the consumer bankruptcy system. The proposed legislation would give consumers the tools to address all of their financial obligations — mortgages, car loans, student loans, medical debt, and more. It would enable renters to stay in their leases without catching up on months of back rent. And it would make it possible for consumers to actually afford to file for bankruptcy, according to Prof. Levitin. Collection moratoria have bought Congress some time to act before the debt-collection tsunami strikes. Congress should take action to reform consumer bankruptcy law so that it can operate as an effective safety valve for consumers’ economic fallout from COVID.



*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.

SBA to Reopen Paycheck Protection Program Tomorrow

The Small Business Administration (SBA) tomorrow will begin accepting applications for the second round of Paycheck Protection Program (PPP) loans, the agency announced on Wednesday, The Hill reported. PPP-eligible lenders with less than $1 billion in assets can begin sending loans to the SBA for approval Friday, and the program will reopen to lenders of all sizes Tuesday, the agency said. The head start for smaller lenders is intended to ensure that smaller businesses can obtain PPP loans after many were unable to do so during the first round of disbursement in 2020. President Trump in December signed a bipartisan coronavirus relief bill allocating another $284 billion for the PPP, which offers loans to small businesses that can be entirely forgiven if used to retain workers and cover basic operating expenses. The SBA has issued 4.9 million PPP loans since the program opened in April and has already forgiven $100 billion in loans. The second round of PPP is open to both businesses that received loans in the first round and those who did not. To be eligible for a second PPP loan — which cannot exceed $2 million — a business must have 300 employees or fewer, have used or will soon use all of the money from its previous PPP loan for authorized uses, and can show at least a 25 percent decline in gross receipts between comparable quarters in 2019 and 2020, the agency said.

U.S. Unemployment Claims Rise as Coronavirus Weighs on Economy

The number of workers filing for jobless benefits posted its biggest weekly gain since the pandemic hit last March, and the head of the Federal Reserve has warned that the job market has a long way to go before it is strong again, the Wall Street Journal reported. Applications for unemployment claims, a proxy for layoffs, rose by 181,000 to 965,000 last week, the Labor Department said Thursday, reflecting rising layoffs amid a winter surge in coronavirus cases. The total for the week ended Jan. 9 also was the highest in nearly five months and put claims well above the roughly 800,000 a week they had averaged in recent months. “We are a long way from maximum employment,” Fed Chairman Jerome Powell said. The U.S. labor-market recovery stalled last month, with the December jobs report showing that the U.S. lost 140,000 payroll positions. The economic recovery’s slowdown has included weakness in household spending, though economists expect the economy to rebound later this year as a COVID-19 vaccine is distributed through the population. But the increase in unemployment claims is another sign that the economic recovery is, at least for now, sputtering, as COVID-19 infections hit record levels nationwide. Employers cut 140,000 jobs in December, marking the first decline since the pandemic hit last spring. The leisure and hospitality industry bore the brunt of the decline, shedding 498,000 jobs as a surge in coronavirus infections forced many restaurants and bars to close or scale back operations. (Subscription required.)

Commentary: Group of 12,500 Storefronts Reveals 2021 Retail Risk

To fully assess the frail health of America’s clothing and accessories business, it’s important to look beyond its biggest names to the tier of retailers that could be described as the industry’s middleweights: the specialty chains with $300 million to $3 billion in annual revenue and a sizeable store portfolio, such as Guess Inc., Chico’s FAS Inc. and Children’s Place Inc. Wall Street doesn’t closely track these companies, perhaps because of their relatively small market capitalizations, which are often less than $1 billion, according to a Bloomberg commentary. They warrant attention, though, because this group could be the epicenter of retail upheaval in 2021. Some middleweights have business models that were difficult to sustain before the pandemic and are even more so now. Cato Corp., for example, had only $825 million in revenue in 2019 but has nearly 1,350 stores — more physical locations than retailing juggernaut Best Buy Co. There are 17 middleweights that collectively accounted for $22 billion in revenue in 2019 – less than the annual sales of Macy’s that year. But they are a force at shopping centers because together they account for a staggering number of stores — about 12,500 — and that makes their travails important for the entire clothing industry. Any problems or retrenchments have the potential to affect their landlords and co-tenants. The middleweights are grappling with some of the same problems as their bigger counterparts. The pandemic has sapped clothing demand, and in some cases, the retailers came into this crisis in a weakened position because of prior poor decisions. Chico’s, whose Canadian subsidiary filed for bankruptcy in 2020, has recorded sagging sales for years amid stumbles with garment colors, prints and aesthetic. J. Jill, which teetered on the edge of bankruptcy in 2020, has also been hurt by fashion misfires. Compounding the problem, the companies in this group are not e-commerce pace-setters. At their scale, it might not make sense to build sprawling distribution centers like behemoths Gap and Macy’s, nor do they have as much muscle to flex with shipping partners. Their stores are often relatively tiny, an obstacle to fulfilling high volumes of orders from those locations. In some instances, they’ve been late to make moves that would have helped them endure the challenges of the pandemic.

IRS Watchdog: Millions Had Major Problems Last Year Getting Tax Refunds, Stimulus Payments

The IRS “generally performed well” carrying out last year’s tax-filing season and issuing the first round of coronavirus stimulus payments, but millions of taxpayers still encountered significant problems, according to a report issued on Wednesday by the agency's in-house watchdog, The Hill reported. “Despite the IRS’s overall success in managing the filing season and accurately paying the significant majority of [economic impact payments], some taxpayers experienced major problems, and the agency was not always fully transparent about its struggles,” National Taxpayer Advocate Erin Collins wrote in the annual report her office submits to Congress. The COVID-19 pandemic led the IRS last spring — during the middle of the filing season — to temporarily close mail facilities, call centers and taxpayer assistance centers. Around the same time, the IRS was tasked with issuing relief payments of up to $1,200 per adult and $500 per child that were authorized by the CARES Act. Collins said in her report that the IRS did a good job handling the tasks it could automate. In cases where taxpayers filed their returns electronically last year, the IRS was able to process the vast majority of the returns quickly and issue refunds promptly. Additionally, most taxpayers quickly received the correct stimulus payment amount, she said. However, Collins said there were several areas where taxpayers had major difficulties in 2020, including millions experiencing lengthy delays in getting their refunds.

Don't Miss the "Diversity in Insolvency: Putting Inclusive Ideas into Practice" abiLIVE Webinar on Jan. 21

Build a better law practice while building a more diverse and inclusive workplace! Sponsored by ABI's Diversity and Inclusion Working Group, the "Diversity in Insolvency: Putting Inclusive Ideas into Practice" webinar will feature Diversity and Inclusion (D&I) leaders from the public and private sectors, who will discuss the effects of diversity, equity and inclusion on career trajectory, mentorship and the bottom line, while providing tips and best practices for retaining and attracting talent. The session will begin with a plenary session, followed by breakout rooms staffed with a D&I expert and a bankruptcy judge. The program will conclude with an optional happy hour. Click here to register for FREE.

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