Latest news with #Bankruptcy
Yahoo
a day ago
- Business
- Yahoo
Should SL debt be easier to discharge in bankruptcy?
Key takeaways Bankruptcy discharge of student loans is very difficult, but not impossible, and requires demonstrating undue hardship in an adversarial proceeding. Exceptions exist, such as the possibility of discharging loans that are not qualified education loans. Recent policy changes by the U.S. Departments of Education and Justice permit the bankruptcy discharge of some student loans in specific circumstances. Legislative proposals to make bankruptcy discharge of student loans more accessible are gaining traction, reflecting a growing consensus that current rules are too harsh. Shop Top Mortgage Rates A quicker path to financial freedom Personalized rates in minutes Your Path to Homeownership Discharging student loans in bankruptcy has long been very difficult, earning student loans a reputation as non-dischargeable debt. However, it is still possible to discharge some student loans. The shifting landscape of student loan bankruptcy discharge is making it easier (although still not easy) to obtain a bankruptcy discharge, and proposed legislation brings a glimmer of hope for struggling borrowers. 50 years of restricting student loan bankruptcy discharges Over the last five decades, Congress has made it more difficult to discharge student loans in Amendments of 1976 requires five years of repayment before bankruptcy dischargeU.S. Court of Appeals for the 8th Circuit defines undue hardshipThe Bankruptcy Amendments and Federal Judgeship Act of 1984 adds private student loans backed by nonprofits to the bankruptcy discharge exceptionU.S. Court of Appeals for the 2nd Circuit adds the requirement that borrowers make a good-faith effort to repay their student loan debt before dischargeCrime Control Act of 1990 increases the required repayment period to seven yearsHigher Education Amendments of 1998 eliminates the waiting periodBAPCPA redefines undue hardship and eliminates the need for private loans to be guaranteed by a nonprofit Before 1976, student loans could be discharged in bankruptcy without exception, like other unsecured loans. Then, the Education Amendments of 1976 required a borrower's student loans to have been in repayment for at least five years before they could be discharged, unless the borrower could demonstrate that requiring the loans to be repaid would impose 'undue hardship' on the borrower and the borrower's dependents. The term 'undue hardship' was not initially defined in the U.S. Bankruptcy Code. This exception was restricted to institutional and federal student loans. In 1981, the U.S. Court of Appeals for the 8th Circuit issued a decision in Andrews v. South Dakota Student Loan Assistance Corp that defined 'undue hardship' using the Totality of Circumstances Test. The Totality of Circumstances Test has two prongs: The borrower must be currently unable to repay their student loans while maintaining a minimal standard of living, and The circumstances that prevent the borrower from repaying the debt must be expected to persist for most of the life of the loans. The Totality of Circumstances Test applies in the 8th circuit. The Bankruptcy Amendments and Federal Judgeship Act of 1984 expanded the exception to bankruptcy discharge to include private student loans if they were backed by nonprofit institutions. In 1987, the U.S. Court of Appeals for the 2nd Circuit issued a decision in Brunner v. NY HESC that redefined 'undue hardship.' The Brunner Test adds a third prong to the Totality of Circumstances Test, requiring the borrower to have made a good faith effort to repay the debt. This is a very harsh standard that one bankruptcy judge, Judge Burton R. Lifland, described as requiring 'a certainty of hopelessness.' Keep in mind: The Brunner Test applies in the 2nd, 3rd, 4th, 5th, 6th, 7th, 9th, 10th and 11th circuits. The Crime Control Act of 1990 increased the waiting period from five years to seven years, but then the Higher Education Amendments of 1998 eliminated the waiting period entirely. This left undue hardship as the only option for bankruptcy discharge of student loans. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 added an exception to discharge for qualified education loans. Qualified education loans are federal and private student loans that are eligible for the student loan interest deduction. Private student loans no longer needed to rely on a nonprofit guarantor to protect against bankruptcy discharge. BAPCPA also added a general definition of undue hardship that establishes a presumption of undue hardship if the borrower's monthly income is less than the monthly loan payments. This definition is similar to the first prong of the Totality of Circumstances Test and the Brunner Test. It is not, however, specific to the bankruptcy discharge of student loans. Government, legislators weigh easier path to discharge Recent years have brought a significant shift towards a more pragmatic approach to the bankruptcy discharge of federal student loans. On Nov. 17, 2022, the U.S. Department of Education and the U.S. Department of Justice issued guidance concerning when the DOJ would not oppose a bankruptcy petition for federal student loans. The new policy avoids the expense of fighting a bankruptcy discharge when the cost of litigation exceeds the potential recovery or when the federal government is likely to lose the lawsuit. This new policy represents a significant departure from the previous 'scorched earth' approach that fought every bankruptcy filing, regardless of the cost. A subsequent report by the DOJ presented data showing that this new policy led to an increase in bankruptcy discharge filings. There have also been proposals in Congress to make it easier to discharge student loans in bankruptcy. None of these proposals have made it out of committee. But consensus is building that the current rules are too harsh. Some lenders and policymakers have supported proposals to restore a time-based option for discharging student loans after they have been in repayment for 7 or 10 years. It can be beneficial for lenders to get uncollectable loans off their books. For example, the bipartisan legislation, Fresh START Through Bankruptcy Act of 2021, would have allowed the discharge of student loans after a 10-year waiting period. The Private Student Loan Bankruptcy Fairness Act of 2025 would have removed the exception to discharge for private student loans, but retained it for federal student loans. The Medical Bankruptcy Fairness Act of 2024 would have allowed bankruptcy discharge of student loans when the debtor is a medically distressed debtor, implicitly defining it as an example of undue hardship. The Discharge Student Loans in Bankruptcy Act of 2019 would have repealed the exception to discharge of student loans entirely, as would the HIGHER ED Act. Bankruptcy reform is sorely needed for struggling borrowers Bankruptcy reform for student loans is long overdue. Current bankruptcy law treats defaulted student loan borrowers as though they were criminals, tax cheats and deadbeats. It does not provide them with an opportunity for meaningful financial relief. While federal student loans provide death and disability discharges, half of private student loans do not. Federal student loans offer income-driven repayment plans, though they cancel debt only after very long repayment terms that are akin to indentured servitude. Most private student loans do not even offer income-based repayment. The federal government can seize Social Security benefit payments that recipients need to survive, a morally bankrupt policy. The government gives with one hand while taking back with the other. If Congress were to allow for bankruptcy discharge of student loans, it might encourage lenders to offer more opportunities for compromise with borrowers, lest they lose the loans entirely. There never was any evidence of abuse, but requiring seven years in repayment seems sufficient to prevent discharge of student loans immediately after graduation. Most of the discharges would be by borrowers who dropped out of college, not borrowers who graduated. These borrowers have the debt, but not the degree that can help them repay the debt. Why finishing college could help solve the student loan crisis Policymakers often blame student loan delinquencies and defaults on the amount of debt. But I argue there really isn't a student loan problem, so much as a college completion problem. Learn more The courts already require means-testing before permitting a discharge. Congress should also provide a definition of undue hardship, so that a single standard applies nationwide. How to bankrupt your student loans Only about 0.04% of student loan borrowers who file for bankruptcy succeed in discharging their student loans. Discharging student loans in bankruptcy generally requires demonstrating undue hardship in an adversarial proceeding. In some cases, however, demonstrating undue hardship might not be necessary. If the lender cannot provide proof that the debt is owed, such as a signed promissory note, the courts will sometimes allow the discharge of the debt. If the borrower was ineligible for the student loans at the time they were made, the loans will be discharged. For example, some borrowers have been able to get their federal student loans discharged by demonstrating that they were incarcerated in federal or state prison. Some loans are not qualified education loans — for example, if the loan was made for study at an ineligible college, to an ineligible student (one enrolled less than half-time or while not pursuing a degree or certificate), or for expenses other than qualified educational expenses. Demonstrating undue hardship Demonstrating undue hardship often depends on the borrower's health, age, education and number of dependents, if these factors affect the borrower's expenses or income. Factors a court may consider The disability or medical condition of the borrower or the borrower's dependents can affect the borrower's income and expenses. While federal loans offer a disability discharge, some private student loans do not. The quality of the borrower's education or the borrower's failure to graduate may affect the borrower's ability to get a job sufficient to repay their student loans. Students who drop out of college are four times more likely to default on their student loans. Older borrowers may have a limited remaining work life during which they can earn money to repay their debts. The courts may also consider whether the borrower has the ability to reduce expenses and increase income. Most private student loans do not offer income-driven repayment plans, which base the monthly loan payments on a percentage of the borrower's income, as opposed to the amount they owe. This may lead to loan payments that are out of sync with the borrower's income and ability to repay the debt. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
15-07-2025
- Business
- Bloomberg
Recovery From Distressed Debt Swaps Beats Bankruptcy, Fitch Says
Distressed debt exchanges have been delivering better average outcomes for lenders compared to bankruptcies, according to a Fitch Ratings report. Such swaps have yielded an average recoveries of between 77.8% and 92.8%, according to Fitch, which analyzed transactions from 2024 through the first quarter.
Daily Mail
26-06-2025
- Business
- Daily Mail
JCPenney announces HUNDREDS of staffers will lose jobs in latest closing
Nearly 300 workers will be losing their jobs now that JCPenney is preparing to shutter Alliance Supply Chain facility in Texas. The struggling department chain will be closing the warehouse and begin its first round of layoffs on August 1, lasting until August 14. It will start the second round on November 1, which is scheduled to end on November 14. The warehouse will close for good in the same month. 'JCPenney is always seeking ways to adapt and enhance our operations with the goal of providing a better experience for our customers,' the company told 'After a thorough review of our organization, we've made the difficult decision to close our JCPenney Alliance Regional Logistics Center.' The chain has informed all affected employees of the decision and has offered them severance, benefits, and transition resources. The latest layoffs come a month after JCPenney shuttered seven stores in California, Colorado, Idaho, Kansas, New Hampshire. North Carolina, and West Virginia. Even though about 650 stores are still running, the brand has found it hard to bounce back from its 2020 bankruptcy filing. The chain's profit losses became noticeable in 2011, and worsened during the COVID-19 pandemic. JCPenney was forced to file for bankruptcy protection with $5 billion in debt and began closing 30 percent of its stores as part of a restructuring plan. Despite its bankruptcy exit in December 2020, the chain shuttered around 192 stores in 2021, and closed another 50 a year later. The previous closures, along with its upcoming warehouse shutdown, is meant to 'build a stronger, more competitive company,' according to JCPenney. Not including credit card sales, JCPenney finished 2024 with $6.3 billion in sales, an 8.6 percent decline compared to the year prior. It also suffered a $177 million loss in net sales, which came 'despite some reasonable cost control on general expenses.' JCPenney is fighting through its financial struggles, even launching exclusive lines created in collaboration with Ally Brooke, Dwayne Wade, and Gabrielle Union. While its collaborations may have helped with sales, the company's revenue fell over 9 percent to $2.09 billion during its fourth quarter, ultimately resulting in a $64 million net loss. JCPenney is one of many retailers that has left shoppers concerned over its future. Macy's is in the process of shuttering 66 locations this year after announcing its plan to close 150 stores by 2026. Once the planned closures are complete, the luxury retailer will only be operating 350 stores. Torrid, a once-popular mall staple, is set to close up to 180 stores following its sharp drop in sales. Other closures that left shoppers stunned include Saks' Union Square store and Neiman Marcus' downtown Dallas location. The struggles were too severe for chains such as Forever21 and Hudson's Bay to handle, resulting in total store closure.
