Thursday, July 19, 2018

U.S. News & World Report: New Bankruptcy Rules Proposed for Student Debtors

By Courtney Nagle

Student loans are a hefty burden for many Americans.

There are around 44 million borrowers with student debt, according to a 2017 report from the Consumer Financial Protection Bureau. Outstanding student debt sits at about $1.4 trillion, with nearly 11 percent of debt that was 90 days or more delinquent or in default at the end of March 2018, according to the most recent report by the Federal Reserve Bank of New York. So the burden is common ground for many people, to say the least.

In recent years, it's been almost impossible to get a court to discharge student loans in bankruptcy.  However, while difficult, student loans have been discharged in bankruptcy before. When loans are discharged, it means the borrower is no longer legally required to repay them.

The HIGHER ED Act, H.R. 5549, introduced by Democratic Congressman Peter DeFazio from Oregon in April, would make significant changes to bankruptcy rules regarding student loans and may provide relief for some borrowers. The proposed legislation would broaden the definition of "undue hardship," the standard used to determine if a debt is eligible for discharge.

To date, Congress hasn't defined undue hardship and has left it to courts to decide on a case-by-case basis. But momentum is building with the Trump administration and in Congress to define undue hardship for student loan borrowers.

Earlier this year, the Department of Education issued a request for public comment to collect data and feedback on whether there's a need to modify how undue-hardship claims by student loan borrowers in bankruptcy are evaluated. The Education Department has expressed concerns that the undue hardship standard in its present form is discouraging borrowers from filing for bankruptcy.
Evidence that supports the concern can be found in a study by Jason Iuliano at the University of Pennsylvania Law School.

Iuliano found that nearly 40 percent of borrowers who include their student loans in their bankruptcy filing ended up with some or all their student debt discharged, but only 0.1 percent of people who filed for bankruptcy attempted to discharge their student loans. The study suggests that many student loan borrowers who are filing for bankruptcy often don't attempt a student loan discharge since it's challenging to meet the requirements used by most circuit courts.

According to the National Consumer Law Center, all federal courts of appeal except the Boston-based 1st U.S. Circuit Court of Appeals and the St. Louis-based 8th U.S. Circuit Court of Appeals have adopted what's known as the Brunner test to define undue hardship. It's based on three factors students must prove:
  1. Would you be able to maintain a minimal standard of living if you had to repay the loan?
  2. Are the financial difficulties you face temporary, or are they expected to continue for several years?
  3. Have you made efforts to keep up with your student loan payments before filing for bankruptcy?
Borrowers must be able to prove the student debt is making it impossible to support themselves and their family and their financial situation is not expected to improve for several years.

The Department of Education is currently re-evaluating these criteria and developing guidance on determining when a student is experiencing undue hardship. It's also looking at whether to change the weights of each factor and make student loan discharges more accessible for borrowers who need relief.

There are arguments for both sides of this issue. Opponents fear that making discharge easier could put student loan programs in jeopardy and that people will game the system and run up debts with no intention to repay. But consumer advocates support the change, saying there are a lack of options for struggling student loan borrowers.

These advocates hope that by changing the definition of undue hardship, more qualified student loan borrowers will be able to get debt relief when filing bankruptcy by being able to include their student loans. Whether this change will take place or not is still unclear.

For borrowers who are struggling to make their payments and headed into default, here are a few tips to consider with the current rules.

Review the Education Department's guidance on bankruptcy. The Department of Education developed guidance for borrowers in 2015 on whether they would be likely to qualify for a student loan discharge through bankruptcy. The guidance provides hypothetical examples of several scenarios where it would be likely. It's important to do your research and use all of your resources.

Talk to your lender. Federal student loans come with income-driven repayment plans, deferment or forbearance, and sometimes loan forgiveness. If you are struggling to figure out if there's a good option for you other than bankruptcy, the Student Loan Ranger recommends reaching out to your servicer, lender or a nonprofit credit counselor.  They can evaluate your specific situation and explain what options you have. There may even be a hardship program you don't know about.

Copyright 2018 © U.S. News & World Report L.P.  All rights reserved.

Thursday, July 12, 2018

New York Daily News: Taxi drivers rally for new City Council regulations

By Dan Rivoli

City taxi drivers’ patience meter is running out.

The New York Taxi Workers Alliance rallied outside City Hall on Tuesday as cabbies said they want new regulations to boost wages and the values of yellow taxi medallions.

The driver group has advocated for a cap on for-hire cars and to make the meter fare the minimum rate industry wide and give app drivers 80% of trip fare.

The city Taxi & Limousine Commission, meanwhile, proposed a minimum wage standard so app drivers could make $17.22 an hour.

But the taxi drivers group opposed that, arguing that price would be a ceiling.

Bhairavi Desai, director of the alliance, said the focus should be on City Council regulations.

“There’s finally momentum in the City of New York to properly regulate this Wall Street darling,” Desai said, referencing Uber. “We don’t want the Taxi & Limousine Commission to play interference with our momentum.”

TLC spokeswoman Rebecca Harshbarger said the agency is working with the City Council and the industry to address drivers' economic challenges.

The rally followed the release of an over-$1 million Uber ad highlighting its service in the outer boroughs.

“As policymakers contemplate new industry regulations, they must ensure that people who have been ignored by yellow taxi and underserved by mass transit aren’t punished,” Uber spokeswoman Alix Anfang said.

Councilman Barry Grodenchik, who has taxi drivers in his Queens district, said there’s a new sense of urgency from Council Speaker Corey Johnson to add new regulations to the industry, in light of six taxi driver suicides.

“I want it done sooner, rather than later,” Grodenchik said. “My district can’t wait and I don’t think that there’s dilly-dallying going on. It's a very complicated situation.”

“The Council is deeply concerned with the emotional, mental, and financial pain drivers in this industry are currently experiencing and remains committed to finding a legislative solution,” Jacob Tugendrajch, a spokesman for Johnson, said. “The Council continues to work on legislation that would protect drivers, increase fairness and combat congestion.”

Inder Parmar, an Uber driver since 2013 who has cousins and neighbors who drive yellow cabs, backs efforts in the City Council to set a standard fare across the industry.

“Patience is running out,” Parmar said. “City Council, I have a request to them to act on it as soon as possible. This way, we do not see any other driver committing suicide.”

Copyright 2018 New York Daily News.

Monday, July 09, 2018

June 2018 TLC medallion sales


The June 2018 New York City Taxi & Limousine Commission (TLC) sales results have been released to the public. And as is our practice, provided below are James Shenwick’s comments about those sales results.

1. The volume of transfers rose from May. In June, there were 41 taxi medallion sales.

2. 36 of the 41 sales were foreclosure sales, which means that the medallion owner defaulted on the bank loan and the banks were foreclosing to obtain possession of the medallion. We disregard these transfers in our analysis of the data, because we believe that they are outliers and not indicative of the true value of the medallion, which is a sale between a buyer and a seller under no pressure to sell (fair market value).  Another transfer was due to a partnership split, which also does not reflect fair market value and which we have also excluded from our analysis.

3. However the large volume of foreclosure sales (approximately 88%) is in our opinion evidence of the continued weakness in the taxi medallion market.

4. The four regular sales ranged from a low of $172,000 (one medallion), another at $175,000, another at $180,000 and a high of $200,000.

5.  Accordingly, the median value of a medallion in June was $177,500.

Please continue to read our blog to see what happens to medallion pricing in the future. Any individuals or businesses with questions about taxi medallion valuations or workouts should contact Jim Shenwick at (212) 541-6224 or via email at jshenwick@gmail.com.

Thursday, July 05, 2018

Another success story for an individual with too much debt!

An individual who incurred excessive debt due to a failed business and divorce came to us for a consultation.  He was concerned not only with the amount of debt he had, but also about how that debt would impact his credit rating and ability to borrow money in the future.   We asked him to prepare the following information for the initial consultation: (1) the amount of money he owed creditors, including any pending lawsuits; (2) the property or assets that he owned; and (3) an after tax monthly budget, starting with the amount of money he made each month after taxes less his ordinary and necessary living and work expenses.

His initial consultation took about an hour, and we discussed how he should deal with the debt from the failed business and divorce. His choices were either workouts with creditors or a Chapter 7 bankruptcy filing.  After reviewing the information supplied by the client, we agreed that workouts with creditors was a better way to proceed then a Chapter 7 bankruptcy filing.

He made a list of all his creditors, and after reviewing his budget, determined how much of his monthly cash flow he could dedicate to paying his creditors. He contacted each of his creditors, and with advice from James Shenwick, he was able to enter into workouts with all of them.

These workouts generally involve either a single payment of a discounted lump sum to the creditor or payments of money over time against the monies due to the creditor (installment payments). The timeline for these payments to creditors ranged from six months to 18 months.

Another factor that must be considered in doing workouts with creditors (also known as out-of-court settlements) is the issue of  “relief of indebtedness income” under § 108 of the Internal Revenue Code (IRC).  Section 108 of the IRC provides that if an individual borrows money and does not fully repay a creditor, then he or she is enriched by the amount of debt not repaid to the creditor, which is considered taxable income. In round numbers, the IRC provides that if an individual borrows $100,000 and repays $50,000, then he or she must report $50,000 of income to the IRS and pay tax on that income. Generally, institutional creditors like credit card companies will report this relief of indebtedness income to the IRS via a 1099-R.

This client’s story continues with more good news! After repaying his creditors, he was concerned about his credit score (FICO score) and his ability to borrow money in the future to buy real estate or to lease or buy a car.  He obtained a credit report from Credit Karma, and upon review, we noticed several errors. Using a federal and state law known as The Fair Credit Reporting Act, he retained us to contact those creditors and the credit reporting agencies to correct the errors. It took some time and effort, but in approximately three months we were able to correct those errors, and the good news is that he reported to us that he applied for and obtained a new credit card, which showed that he was now creditworthy!  He was very excited about this news and thrilled to have reduced his debt and maintained his ability to obtain credit. Individuals with similar issues should contact Jim Shenwick at (212) 541-6224 or jshenwick@gmail.com for a consultation regarding their options for dealing with debt. Jim

Wednesday, June 20, 2018

Bloomberg: The Taxicab Bubble Couldn’t Last Forever


Bloomberg News on Monday posted an article about something that has become a pretty big deal in New York City: Taxi drivers are committing suicide.

Since November, six drivers, beset with financial difficulties, have taken their own lives, most recently last Friday. After every death, there are calls from the Taxi Workers Alliance, which represents the drivers — and plenty of others — for the city to start restricting the number of Uber and Lyft cars on the road. Taxi drivers view Uber Technologies Inc. and Lyft Inc. as not so much disrupting their industry as destroying it.

I suppose you can't really blame them for portraying Uber and Lyft as the enemy. In 2011, before Uber entered the New York market, there were 13,587 yellow cabs in the city of 8.5 million people.

The number of cabs in New York has been capped since 1937, after a Depression-era glut made it impossible to make a living as a taxi driver. The mechanism the city used to restrict cabs was a medallion that one had to buy to own a cab. Because there were so few cabs for so many people, the law of supply and demand kicked in, driving up the price of medallions. According to the New York Times, the value of a medallion topped out at $1.3 million in 2014.

Today, according to Bloomberg, there are an astonishing 80,000 "app-based transportation vehicles," driving around New York City. If 13,587 cabs were too few, then it's fair to say that the current 100,000-plus cars-for-hire are too many. The price of a medallion has dropped as low as $130,000.

Taxicab operators who thought their medallion would finance their retirement are now drowning in debt. Cabbies — many of whom lease their cabs from medallion owners — can no longer make their lease payments because their business has dwindled. And there is one other downside: All those app-based cars have slowed down traffic in New York by 23 percent since 2010, costing the city an estimated $34 billion a year.

On the other hand, is it really fair to blame everything on Uber and Lyft? I would argue that before throwing rocks at the competition, the New York taxi industry would do well to take a long, hard look in the mirror. Like internet stocks in the late 1990s, and real estate in 2005 and 2006, medallions were a bubble that was bound to burst. Uber and Lyft mainly provided the pins that popped it.

As was the case in many cities, yellow cabs in New York held a monopoly on cars-for-hire — and as is often the case with government-mandated monopolies, the result was an industry that put its own needs before that of its customers. As my colleague Barry Ritholtz pointed out recently, the taxi industry changed shifts between 5 p.m. and 6 p.m. — the exact moment when the largest number of people were trying to hail cabs. It was impossible to get a cab when it rained, or if there was a subway breakdown. Cars were often grimy.

Did the taxi industry care? No. So long as cabs remained scarce, the value of their medallions kept going up — and that's all that really mattered. As the price rose, people wanting to buy medallions had to take out loans that were as big, or bigger, than their mortgages. But that was OK too. They made the same assumption that homebuyers made in 2006: that the price could only keep rising.

There are any number of things the industry could have done to minimize the impact of Uber and Lyft. The most obvious was to have increased the number of cabs over the years, something that could have been sensibly calibrated so that cabbies could still make a good living while riders had an easier time finding a taxi. It could have embraced technology so that people could hail a cab via an app instead of having to stand at a corner and hope for the best. 1  And it could have replaced medallions with renewable licenses, which would have ended the bubble before it got out of hand.

But the taxi lobby was powerful, and so was the industry's view that medallions were a sure-fire way to get rich. The situation was untenable, however; if Uber hadn't come along to burst the bubble, something else would have. Because the taxi industry had treated riders so shabbily, people embraced the new cars-for-hire even though they were usually more expensive than a taxi ride.

What is astonishing to me is that the industry still doesn't seem to realize that it sowed the seeds of its own destruction. For instance, in a case decided late last year, two medallions owners sued the city's Taxi & Limousine Commission for failing to maintain the "financial stability" of the medallions — as if that were somehow a government responsibility. But, wrote the judge, the plaintiffs "have pointed to no statute or regulation that compels the Taxi & Limousine Commission to artificially inflate the value of medallions." The suit was tossed.

In another case, medallion owners and their lenders sued the city and the commission for, as Reuters put it, "jeopardizing their survival by imposing burdensome regulations and letting the Uber ride-sharing service take passengers away." That suit got tossed as well.

At a rally outside city hall Monday, the Taxi Worker Alliance once again pointed to Uber and Lyft — "Wall Street companies," an alliance official called them — as the reason for the cabbies' struggles. She called on the city to both regulate them and reduce their number.

I have some sympathy with the latter request. A cabbie — or an Uber driver — ought to be able to make a living driving a car-for-hire, and that doesn't appear to be possible now. 2  But any reduction should involve every kind of car-for-hire, not just Uber. There is no law that says the number of Uber cars must shrink so that all 13,587 taxis can be saved.

Medallions are a different story. When the internet bubble burst, nobody bailed out tech investors. And when the subprime loan bubble burst, the federal government took the position that it had to let foreclosures run their course, no matter how much pain they inflicted on homeowners. Why should medallion owners be treated any differently?

Medallion owners had a sweet deal for a long time. Now that sweet deal is going away. It's painful, yes, but it's not the job of government to protect a monopoly. Once medallions are no longer prized for their ability to make people rich, everyone in New York — taxi drivers included — will be better off.

  1. It uses such technology now, but it's a day late and a dollar short.
  2. I've spoken to many Uber drivers over the years. I've yet to meet one who said he could make a living driving full time for the company.
Copytight 2018 Bloomberg L.P.  All rights reserved.