Category: Bankruptcy

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BUY NOW, BUT PAY FOR IT LATER: HOW BNPLS ALLOW UNSECURED CONSUMER DEBT TO ACCUMULATE WITHOUT REGULATION

A Note by Alec Klimowicz

Download the full note here.

Buy Now, Pay Later (“BNPL”) has taken consumer shopping by storm. Businesses have emerged with the BNPL model as its primary operation, offering repayment plans, typically in four equal payments across six weeks, at no interest.[1] A financial movement that ostensibly began only a couple of years ago is now playing a role in over 200 billion dollars’ worth of transactions.[2] Consumers have accelerated BNPL’s use during the pandemic; BNPL’s usage increased by 230% in 2020 and 400% during the same year’s Black Friday holiday.[3] These businesses, however, have grown at such an exponential rate that regulators are now playing catch up.[4] The balancing act for regulators is to permit wide-usage of the service without taking away its redeeming qualities.

[1] Eversheds Sutherland, Focus on Fintech: The CFPB is Scrutinizing Buy Now Pay Later Products … Read the rest

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Lifting the Injunctions: The end of “the trial of the century” in sovereign debt

By: Luis F. Gomez-Alfaro                                                                                                   

Introduction

The newly-elected government of Argentina has offered to pay all the holders of its sovereign debt.[1] This proposal is a striking reversal of Argentina’s decade-long position of only making payments to the holders of it restructured debt (“exchanged creditors”), but not to those that had refused to exchange their bonds at a 65% loss (“holdout creditors”).[2]  If the negotiations are successful, and the injunctions against Argentina are lifted, these developments will bring an end to the so called “trial of the century in sovereign debt restructuring,” [3] and cement a remarkable empowerment of holdout creditors in sovereign debt restructuring processes.

Argentina’s newly elected President, Mauricio Macri, has vowed to regain access to the sovereign debt markets.[4] Currently a series of judgments and injunctions[5] have rendered Argentina unable to make payments only to the exchanged creditors, and has effectively forced the South … Read the rest

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Student Loans: Trading Your Life for a Degree

            Many of today’s high school students are led to believe that, should they wish to be competitive in the job market, a bachelor’s degree, and often a post-graduate degree to boot, is necessary. Flocking to universities across the nation, America’s youth are betting against their uncertain futures and burying themselves under mountains of debt. Too often, these students find themselves overwhelmed after they have graduated and the bill collectors come knocking.

            In 2010, students borrowed approximately $100 billion to fund their educations. In 2010, graduates who had relied upon student loans to fund their educations emerged from their respective universities with an average of $24,000 in student loan debt. By September of 2010, according to the Department of Education, over 320,000 of the 3.6 million individuals with student loans who had entered their repayment period from October 1, 2008, to September 30, … Read the rest

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2011 Bankruptcy Review: What Comes Down Must Go Up

Approximately five years after the United States economy took a nosedive, analysts have started to note possible signs of an economic turnaround. Unemployment claims are at their lowest level since 2008. U.S. GDP is in its tenth consecutive growth quarter. American retail spending is increasing. Additionally, President Obama stated his confidence in continuing economic growth. However, where does the fact that 2011 business and consumer bankruptcy filings were down (as compared to 2010) fall? Whether it is another encouraging signal that the bad economy is on its way out or simply has no correlation, bankruptcy filings this past year have fallen across the board.

Consumer Bankruptcy

Personal bankruptcy filings fell 12% in 2011, with only one out of every 175 Americans filing, compared to one out of 150 people in 2010. Coming off the heels of a steady rise in personal bankruptcy filings from 2005-2010, the American Bankruptcy Institute (ABI) had expected that trend … Read the rest

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Possible Change on the Horizon for Foreclosure Law

 

The current financial crisis ushered in by the collapse of the sub-prime mortgage market has shaken the foundations of our financial markets, exposed numerous Ponzi schemes, most infamously that of Bernard Madoff, and resulted in a tremendous increase in home foreclosures and bankruptcies.  In many of the current bankruptcy cases the line between a fraudulent conveyance and a legitimate transfer can make a difference of millions of dollars for the legitimate creditors.   In the realm of real estate, this situation has placed on the courts the burden of deciding which is more important: fair and equitable distribution of assets among creditors, or the historical distinctions between fraudulent conveyance law and foreclosure law.  

In the late 1980’s and early 1990’s a trend emerged whereby Bankruptcy courts began to allow homeowners who had become insolvent to avoid sales of foreclosed properties that occurred as early as 1 year before … Read the rest

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2008/9 Financial Crisis: A Lot to Learn On Bailouts and Too Big To Fail Companies In Order To Draft New Regulation

I.                 Introduction

Some basic financial concepts and the facts surrounding the 2008/9 economic crisis constitute the first stage of this article.

The analysis of certain characteristics and effects of the Bailouts and of having Too Big To Fail Companies in the market is what follows.

Finally, I will go into different opinions and strategies addressing main issues that are a challenge for the regulation to be enacted in order to prevent these kind crises and deal with the legacy of the bailouts. What to do with Too Big To Fail Companies is part of that approach.

It is a side goal of this article to make the topic in question and the issues arising from it, accessible not only to those with a background in law and finance but especially to people without it.

 

II.               Concepts: Money, Markets, Bubbles, 

… Read the rest
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Reorganizing the Team: Chicago Cubs File for Bankruptcy

I. Introduction

In the struggling economic climate, many corporations have sought bankruptcy relief.  Numerous financial institutions such as the automobile industry and electronic corporations have become accustomed to seeking such restructuring aid and most recently, even the sports world is no longer immune.  In October 2009, the Chicago Cubs organization became yet another victim in this economic downturn as the Tribune Company filed Chapter 11 bankruptcy for the baseball team.  Although many companies have sought relief due to monetary struggles, “‘You don’t have to be insolvent to be in bankruptcy [. . .] All you need is a legitimate business reason.’” [1] The Chicago Cubs seek reprieve as a way to sell the organization in a tight credit market to an eager buyer, not willing to take on the debt of the parent corporation to its creditors.  Through the sale of the Chicago Cubs, the organization … Read the rest

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The Big Three: Bailout or Bankruptcy?

I. Introduction

The auto industry’s troubles have recently come to light in mainstream American news. The big three automakers, comprised of GM, Chrysler and Ford, have seen slumping sales and are in need of major financial help to avoid going under. In 2008, GM’s sales were down 21% in North America. [1] Ford reported a loss of $14.6 billion dollars in the same year. [2] Chrysler’s sales were down 30% in 2008, which was the largest reported loss of the major auto makers last year. [3] Both GM and Chrysler have requested help in the form of federal loans from the US government, while Ford has made an effort to stay afloat without federal help. [4]

II. Government Intervention

The auto industry is a private industry and is thus driven by market forces. Generally, the government allows these market forces to determine which companies will thrive and which will fail. … Read the rest

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Storm Ahead for Sirius XM Merger

I. Introduction  

            On July 25, 2008 the Federal Communications Commission (“FCC”) approved the XM Satellite Radio and Sirius Satellite Radio merger voting 3-2 to approve the deal without imposing many restrictions on the combined entity.[1] Critics of the merger asserted that the combination of two principal satellite radio companies would result in a monopoly.[2] The FCC recognized that the Internet age has revolutionized how individuals obtain and listen to music opening the market to a variety of competition.[3] However, the question remains whether the Sirius XM Radio merger will survive. On July 25, 2009, the day of the announcement of the merger, Sirius shares plunged 43% and XM stock declined 40%. Recently, reports indicate that Sirius XM Radio is preparing to file bankruptcy.[4] This article will analyze the state of Sirius XM Radio as well as give recommendations to Sirius XM radio on … Read the rest

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Are Your Gift Cards Safe?

I. Introduction

On February 19th, 2008 the specialty retailer Sharper Image filed for bankruptcy under Chapter 11 and announced that it would no longer be accepting its gift cards. This came as a shock to consumers, who suddenly found their holiday gift cards worthless. "'That is typical of businesses that reorganize under Chapter 11 bankruptcy, which treats gift cards as a loan to the company, not as cash.'" [1] Chapter 11 allows for an automatic stay of recovery for any claim against the debtor that arose before the filing of the bankruptcy claim. [2] In response to this announcement, C. Britt Beemer, chairman of America's Research Group, projected that this would greatly affect Sharper Image's future. "'You will see a lot of frustration among customers. You basically stole [money] out of the customers' pocket. They will never forgive you.'" [3]

Just two and a half weeks later, on March 7, … Read the rest