Monthly Archives: June 2017

Todays bankruptcy filing by beleaguered Japanese airbag supplier Takata Corp. puts a spotlight on what has become the biggest safety-related recall in automotive history, a deadly defect linked to at least 16 known deaths and more than 100 injuries.

As part of a settlement with the U.S. Justice Department earlier this year, Takata agreed to pay a combination of fines and reimbursements, as well as set up a victims compensation fund, a deal worth $1 billion in total.

The suppliers bankruptcy and sale to Chinese-owned Key Safety Systems isnt likely to impact that settlement. But it's expected to help speed up repairs on the estimated 42 million vehicles sold in the U.S. equipped with the defective airbags. So far, only 38 percent of those vehicles have had their airbag inflators replaced, a situation that could lead to even more deaths and injuries, industry safety experts warn.

Part of the problem is that many of the vehicles using faulty Takata airbags are older some dating back to the 1990s. Some are already off the road but others may have been sold several times, making it hard to track down the current owners.

RELATED: Faulty Airbag Maker Takata Files for Bankruptcy, Sells to Rival

The other issue has been a shortage of replacement parts, said Cliff Howard, service advisor at Ferndale Honda in Michigan. In the beginning, it was a nightmare, he said. We had to put people on a waiting list.

That was especially true in warm, humid regions like Miami, where the Takata airbag defect was first identified. Manufacturing problems at two North American factories meant the companys airbags were especially sensitive to moisture which would cause their inflators to over-inflate, sending shrapnel spewing into the passenger compartment.

Initially, the Takata recall was focused on products sold in places like Southern Florida. But after several deaths occurred in cooler, drier climates, research revealed that the pyrotechnic compound used in those inflators explosive ammonium nitrate can break down over time, with as much as 50% or more of decade-old inflators tested by the National Highway Traffic Safety Administration failing.

But the government still wants automakers to focus their repair campaigns on places like Miami first. That was a real strain, until recently, for dealerships like Toyota of North Miami, where Service Manager Antoine Kerlinst said his repair department is only just now getting good supplies.

The situation has improved, but not for all models, he said, noting that the dealership is telling owners of some Toyota Corolla models they might not be able to be fixed until this December.

Under pressure from federal regulators, automakers have made it easier for owners to check out their vehicles without going into the service shop. Every manufacturers website now has a link to a recall database.

Alternatively, owners can go to the NHTSA site, SaferCar.gov, and enter their VIN to see if theres an outstanding recall.

The "Vehicle Identification Number" is listed on state registration papers and can also be found by peeking through your windshield at the plate bolted to the front of the instrument panel.

What happens if youre on a recall list?

Under the terms of the Takata bankruptcy and sale, the new owners will owner a pledge to set up a $125 million victims compensation program. Experts say it is possible that some instances where airbags malfunctioned havent been reported. If that happened, report your experience on the SaferCar.org website.

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After Takata's Bankruptcy, Is Your Airbag Safe? - NBCNews.com

A group of professors recently wrote Congress to alert it to the folly of repealing orderly liquidation authority and replacing it with bankruptcy. The professors letter is fine as far as it goes, but it does not go far enough.

The professors largely take Dodd-Frank at face value: When a big bank fails, we should try to use the bankruptcy courts first and resort to orderly liquidation authority only in extreme circumstances. That is fine in the abstract, but it bears thinking a bit more deeply about this issue.

Is it really plausible that any of the top half-dozen or so American financial institutions could resolve their financial distress in bankruptcy court? It could happen, just as I may travel to Mars some day.

More realistically, we have to worry that the hurdles to such a case, and the potential knock-on effects, are so significant that such a bank failure would and should proceed immediately to orderly liquidation authority.

That means that bankruptcy for banks should primarily focus on other creatures. For example, it might make sense to devise a bankruptcy court procedure for the next tier of banks and broker-dealers, should they fail. At present the failure of one of the larger regional bank groups might overwhelm both the F.D.I.C.s traditional bank rescue tools and the bankruptcy code.

Seen in that light, it is at least as important that the bankruptcy code address a wide range of financial institutions as it stands ready to address the failure of the next Lehman Brothers.

This reveals the fundamental problem with Congresss present approach. Not only would it leave regulators with no tools to address the failure of a big financial institution, but it would replace that approach with a form of bankruptcy that would be entirely useless for those financial institutions that might actually use a bankruptcy filing.

In particular, Congresss proposed bankruptcy process for banks tries to move the single point of entry strategy developed for the big banks in orderly liquidation authority to the bankruptcy court. Under this strategy, a bank is recused by forcibly converting junior debt to equity.

All the big American banks are revamping their capital structure to facilitate single point of entry. The medium-size financial institutions are not.

So Congress proposes to kill off orderly liquidation authority, the tool that would be of most use to the really big banks, and replace it with a bankruptcy system that will be irrelevant for the really big banks and wont work for medium-size banks.

As a result, we will bail out both in the next financial crisis.

Stephen J. Lubben holds the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and is an expert on bankruptcy.

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A Proposed Bankruptcy for Banks That Will Lead to Bailouts - New York Times

The revised health care bill drafted behind closed doors by Senate Republicans includes massive cuts to Medicaid that would leave 15 million fewer people enrolled in the program by 2026, according to the Congressional Budget Report released Monday.

Those drastic cuts could result in more personal bankruptcy filings from Americans, reversing course from a decrease after the Affordable Care Act was implemented, health care and bankruptcy experts said.

Unpaid and costly medical bills are a significant contributor in the decision to file for bankruptcy, experts said. And even if the finanical distress from being uninsured doesn't send someone into bankruptcy, high and sometimes unexpected medical costs can still send Americans into a lot of debt.

"The evidence here is to the point where it feels like a pretty robust fact," said Matthew Notowidigdo, an associated professor of economics at Northwestern University who specializes in health and labor economics.

"If you were to roll back the Medicaid expansion, that's going to lead to more bankruptcies," he added.

The largest single health insurer in the U.S., Medicaid covers 74 million low-income Americans about a fifth of the entire country that includes predominantly low-income adults, children, elderly people receiving long-term care and people with special needs.

Former President Obama's signature health care law, which Republican lawmakers have aimed to dismantle since its inception, included hefty Medicaid expansions through the use of federal funding and other measures.

The number of personal bankruptcy filings fell from 1,536,799 in 2010 to 770,846 in 2016 in part due to Medicaid expansion. But the new Senate bill, called the Better Care Reconciliation Act , proposes phasing out federal contribution to Medicaid for states, which under the ACA was used as an incentive for states to have Medicaid cover more Americans. The bill also would lower the annual income limit for subsidies.

Personal bankruptcy offers a remedy for indebtednessbut not a long-term one. While there is no definitive estimate on how many filings come as a result of predominately high medical costs, it is a "significant reason" why consumers may file for personal bankruptcy, said Lois Lupica, a bankruptcy expert and Maine Law Foundation Professor of Law at the University of Maine School of Law.

"It seems absurd that we're using the statutory benefit of debt discharge rather than using a statutory benefit of health insurance, because the people who get sick and defer preventative medicine are going to be sicker," Lupica said.

The CBO score of the revised bill notes that 16% fewer Americans under the age of 65 would be insured through Medicaid if the bill becomes law. In total, the CBO estimates 22 million fewer Americans would be insured in 2026 than those would if the current law stayed in place. The cuts to Medicaid would reduce federal spending on the program by $772 billion by 2026.

"This will make a hugely negative impact on many American lives," Lupica said. "It's scary. If it ever gets to the point where it's law, it will have ripple effects throughout the economy."

One of those effects could land on hospitals, which are often hit with extra costs to cover when medical bills go unpaid. Emergency rooms will not turn away uninsured patients, but prices can quickly reach thousands of dollars just from one visit, both Lupica and Notowidigdo said.

Before the CBO score was released Monday afternoon, the National Association of Medicaid Directors, a bipartisan group of directors of state Medicaid programs, came out against the federal spending cuts Monday, calling it "insufficient and unworkable."

"No amount of administrative or regulatory flexibility can compensate for the federal spending reductions that would occur as a result of this bill," the group said.

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The Senate Health Care Bill Could Lead to More Personal Bankruptcies - Money Magazine

YAKIMA, Wash. -- The owner of a longtime medical supply business said he plans to stay open despite filing for bankruptcy earlier this month.

Chuck Vetsch, president of Keeler's Medical Supply, said several issues, including changes in federal Medicare and Medicaid programs, led the company to file for Chapter 11 bankruptcy on June 15 with the Eastern District of Washington of U.S. Bankruptcy Court.

Keelers Medical Supply, which has been in business since 1948, sellsa variety of home medical equipment including walkers, bathroom safety products and breast pumps.

Vetsch said he tried to keep the business operating in recent years despite reductions in reimbursements from Medicare and Medicaid programs the business once received. In addition, the business was dealing with several audits which the business is fighting that led both programs to reclaim distributed payments.

Sales fell from just under $10 million in 2010 to a little over $1.6 million in 2016, Yakima attorney Roger Bailey wrote in a court document. As of June 1, the company had about $785,000 in assets including pending payments for sales, inventory and office supplies.

Court document show that the company liabilities include nearly $1 million owed in various federal and state taxes, including $862,000 with the Internal Revenue Service.

When it became clear that issues would not be resolved quickly, the company decided to file so it could negotiate payment plans with its creditors, Vetsch said.

We just needed everyone to take a breather, he said.

This story will be updated.

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Yakima medical supply business to remain open during bankruptcy process - Yakima Herald-Republic

Japanese air bag maker Takata Corp. filed for bankruptcy protection in Tokyo and the U.S., saying it was the only way it could keep on supplying replacements for faulty air bag inflators linked to the deaths of at least 16 people. (June 26)

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Takata Announces Bankruptcy Protection Filing - Olean Times Herald

Houston Business Journal

Ignite bankruptcy expected to create corporate office job cuts Houston Business Journal ... Chapter 11 bankruptcy protection earlier this month. At the time, the company said it had a buyer lined up for its two brands, Joe's Crab Shack and Brick House Tavern + Tap, but other companies would be allowed to bid through a court-supervised ... and more »

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Ignite bankruptcy expected to create corporate office job cuts - Houston Business Journal