Student debt solution? Allow bankruptcy

One of the great financial burdens today is student debt. Gigantic tuition hikes over the last few decades have saddled college graduates with insurmountable debt that can’t be relieved by bankruptcy.

In 1978, the bankruptcy laws were overhauled and the ability to discharge studennt loans was taken away. The reasoning was tuitions were much lower and there was a robust job market and most graduates had no problems getting jobs.

Fast forward 30 year and tuitions have skyrocketed and graduates have no avenue to climb out from under the debt even if they are gainfully employed.

The ability to declare bankruptcy as a last resort has long been a vital element of American society yet that is denied to young people who need to borrow for their education.

Back when the law was changed, student loan defaults were not an issue. Now due to the high cost of college, defaults are common and a change in the law is needed.

Last year U.S. News and World Report released study saying total student debt now tops $1.3 trillion. It’s the single fastest-growing segment of U.S. consumer debt, increasing by 170 percent over the past ten years. 44 million Americans currently have student debt, and 8 million of those have already defaulted on their loans.

We define that as a crisis.

 

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Boomers and Bankruptcy

The New York Times reports that the signs of coming trouble were there. Vanishing pensions, soaring medical expenses and inadequate savings were building for years. The result is that the rate of seniors 65 and older declaring bankruptcy has tripled since 1991 and now make up a bigger share of all filers.

The cause, according to experts comes from a 30-year shift of a financial risk shift from government and employers to individuals who now burden a greater share of their financial well-being as government help shrinks.

The Times reports the transfer has come in the form of longer waits for social security benefits, the replacement of pensions from companies to personal 401(k)s and more spending on health care.

The paper based their reporting on a study by the Consumer Bankruptcy Project who explain that older people whose finances are precarious have few places to turn.

“When the costs of aging are off-loaded onto a population that simply does not have access to adequate resources, something has to give,” the study says, “and older Americans turn to what little is left of the social safety net — bankruptcy court.”

Deborah Thorne, an associate professor of sociology at the University of Idaho and an author of the study is quoted saying

. “You can manage O.K. until there is a little stumble,” said “It doesn’t even take a big thing.”

The study says “bankruptcy can offer a fresh start for people who need one, but for older Americans it “is too little too late.” By the time they file, their wealth has vanished and they simply do not have enough years to get back on their feet.”

Ailsa Chang of NPR has an interview with Thorne, here

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Serial bankruptcy filers get checked

One of the biggest hustles in bankruptcy court is when on the eve of bankruptcy, the debtor files bankruptcy to stall and stave off the selling of their property or assets.When this happens mutiple times it  over the course of multiple years it is a detriment of not only the secured lender, but also the other creditors whose collection efforts are stayed by the filing of the bankruptcy petition.

A 20-year study by the American Bankruptcy Institute of bankruptcy filers in Utah, found that 10.7 percent of debtors in the study had filed bankruptcy multiple times, and may have been abusing the system and 20.3 percent of those serial debtors who filed Chapter 7 bankruptcy cases, did not receive a discharge, and ultimately had their cases dismissed. Additionally, only 2.9 percent of repeat Chapter 13 filers completed their payment plan. With almost 800,000 bankruptcy filings in the year 2017, serial bankruptcy filers present a massive problem to the judiciary, attorneys and creditors.

But recently, U,S. Court of Appeals for the Seventh Circuit issued an opinion which may have serial filers thinking twice before using bankruptcy as a stall tactic.

In United States v. Williams, 2018 WL 2709457, the debtor fell behind on her payments to several creditors, including the dues to her condominium association. In January 2003, the debtor filed her first of eventually five Chapter 13 bankruptcy cases. The scheme was simple, upon the filing of the bankruptcy case the automatic stay would apply to stop the collection efforts of all creditors. Subsequent to the filing of the bankruptcy case, the debtor would propose a bankruptcy plan, but then fail to make all the payments required under that plan. The failure to make the required payments would lead to the dismissal of the bankruptcy case.

Following the dismissal, the debtor’s condominium association would again begin collection lawsuits, at which point the debtor would again file for bankruptcy protection and the process would continue.

In between the second and third bankruptcy fillings, the debtor transferred title to her condominium to a friend, and then arranged for the property to be transferred back to her at a later date.

After the dismissal of the debtor’s fifth and final bankruptcy case, the condo association once again tried to evict the debtor. But once again, she concocted a scheme to delay the eviction by again transferring the condominium to her friend, who this time filed his own Chapter 13 bankruptcy.

That’s when the government stepped in and charged the debtor and her friend in a five count indictment for bankruptcy fraud. They were found guilty and sentenced to four years. They appealed to the Seventh Circuit who upheld the verdict.

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Retailer Gymboree emerges from bankruptcy ashes

Gymboree, the kids clothing maker, managed to achieve a rare move in the world of retail bankruptcy. It was able to restructure successfully. Bloomberg reported that the company will be  unveiling a rebranded apparel line and an increased tech push in an effort to appeal to the modern parent.

Bloomberg  quotes CEO Daniel Griesemer, who took over in May 2001, “We have spent the past nine to 10 months positioning the company, and the Gymboree brand in particular, for a turnaround. So nationwide, all new products, new brand positioning, new look and feel. Essentially, an all-new Gymboree.”

The company rolled out its new offerings last week which include more basic staples to allow better mixing and matching in an attempt to go up against fast-fashion  retailers who have snagged a bigger share of the youth market.

Griesemer said, “The modern parent learned to shop at Forever 21 and H&M and Zara” and that Gymboree’s line seemed “dated.”

In the next month approximately 75% of their stores will feature the new line and the old inventory will be sold as discounted clearance.

Gymboree will also open 12 new Janie and Jack stores across the country. These stores are a   higher-end clothing line which Griesemer said “has significant room to grow” and will see a “broadening product line.” There are also plans to open “a couple” of new Crazy 8 stores, an  affiliated brand.

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Winner emerges in Interview Magazine bankruptcy

The now bankrupt Interview magazine has hundreds of creditors lined up to get paid. Chances are none of them will get paid what they’re owed, except one, the owner, Peter Brant.

After Andy Warhol died in the late 1980s, Brant bought the magazine and is the company’s sole secured creditor. In bankruptcy speak that means he goes to the head of the line to get paid. The fact he was the owner and he loaned the company money over the years means he is most likely the only one who will get paid. The writers, artists and others who are also owed money are petty much out of luck.

According to court filings Brant floated the magazine around $8.2 million out of his own pocket. The bankruptcy trustee told WWD that in 2016, Interview, was being run led by Brant’s daughter and she guaranteed a loan from her father, “collateralized by security interests in and liens on substantially all of [Interview’s] assets and property.”

Soon after the May bankruptcy filing, Kelly Brant quit as president and in an internal memo wrote that Interview was being bought by Crystal Ball Media, a new company she and Jason Nikic, Interview’s chief revenue officer had formed.

The memo hinted the magazine will relaunch in September with Nick Haramis as editor in chief and Mel Ottenberg, Rihanna’s stylist as creative director. The memo was published by the Daily Front Row, who’s new chief revenue officer is a former Interview executive who claims he is owed $170,000 for his work at Interview.

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