All items from Business Reorganization Report

Sometimes a picture (or a graph) is really worth a thousand words.  So, courtesy of the Federal Reserve Bank of New York, we present you with the following charts and graphs that paint a picture of the rapidly growing form of consumer loan indebtedness known as “student loans.” 
As noted by the Federal Reserve Bank of New York, “[s]tudent loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008. Balances of student loans have eclipsed both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.”  For the interactive chart and graph, please refer to: http://www.newyorkfed.org/studentloandebt/.

The more we read about the student loan crisis that is waiting to take the United States economy by storm, the more we see the parallels between the massive amount of student loan debt circulating and the so-called subprime mortgage debt that created the 2008 bubble burst.  Various articles we have cited provide statistics that indicate student loan indebtedness is on the rise. People cannot afford to, or are simply choosing not to, pay back their student loan debt.  As we have noted, the Bankruptcy Code does not provide the average student loan debtor with the option for a discharge of debt through a personal bankruptcy filing (a feature that was not part of the subprime crisis given that debt related to home financing usually has a much easier path toward discharge in bankruptcy).

We recently posted about the Dewey & LeBoeuf and Ruden McClosky law firm bankruptcies.  As reported by Above The Law this week, a former Howrey LLP partner accused Citibank of committing fraud in connection with a loan program that financed the partner’s “buy in” into Howrey’s partnership. It is not uncommon for newly-minted law firm partners to obtain loans from banks with relationships with the law firm to finance their entry into the law firm partnership. What is interesting about this particular case, is that Citibank was also Howrey’s lender and by virtue of that position it had to know (according to the partners) that Howrey was in grave financial condition.  The essence of the suit is that Citibank should not have lent the plaintiffs the money to make the loan because Citibank knew that the firm was in trouble and that is where the repayments were going to come from.

 Ruden McClosky (“Ruden”) and Dewey & LeBoeuf (“Dewey”) both experienced what no business of any kind wants to experience: financial distress and Chapter 11.
During the last quarter of 2012, Ruden, the former large Florida law firm, confirmed its liquidating chapter 11 plan (and the first sale of a law firm’s assets as going concern through Chapter 11 in the history of the United States).  At about the same time, the bankruptcy judge overseeing Dewey’s bankruptcy approved a $71.5 million settlement between the estate of and its former partners. This settlement appears to be a significant step forward in moving the Dewey chapter 11 case in a positive direction.
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