Monday, April 17, 2017

NY Times: Workers Find Winning a Wage Judgment Can Be an Empty Victory

The sign above Soft Touch Car Wash on Broadway in the Inwood neighborhood of Manhattan declares, “Open 24 hours,” but last month the bustling carwash suddenly closed. It was the same at the four other carwashes owned by the same family in New York City and the surrounding area: the phone lines disconnected, the hoses and wash mops idle and dry.

The operators of the small chain, José and Andrés Vázquez, agreed to pay $1.65 million to 18 employees to settle a federal lawsuit over stolen wages, a significant victory in the battles against wage theft in the city’s low-paying industries.

But the suddenly shuttered carwashes illustrate a persistent problem confronting many low-wage workers not just in New York but across the country: Winning in court is no guarantee that they will ever see much, if any, compensation.

The workers who toiled at the Vázquez carwashes battled for nearly six years before receiving the money they were due, their efforts hampered by the owners having filed for bankruptcy — a well-worn tactic used to avoid paying exploited workers, according to labor advocates. The owners could not be reached for comment.

Now, some New York State lawmakers are renewing a push for legislation that would put in place a type of insurance against this tactic, which crops up in industries from nail salons to restaurants. The measure would essentially enable employees who accuse an employer of wage theft to have a lien placed on the employer’s assets while the outcome is being determined.

“We are improving the lot of low-paid service workers; however, we haven’t attacked this fundamental problem of them giving their work, giving their time, and not getting compensated for it,” said Assemblywoman Linda B. Rosenthal, a Democrat who represents parts of Manhattan. “And it’s just not something we can tolerate anymore.”

In a setback for workers and their advocates, the measure was dropped from the budget agreement that state lawmakers reached. But a bill with the same measure, introduced this year by Ms. Rosenthal, is poised for a vote this spring in the Assembly.

Selling off houses and businesses — sometimes for a nominal sum, and frequently to a relative — and declaring bankruptcy is a move that experts say business owners often use to avoid paying back wages, overtime or damages, usually as a result of a court order. Under Ms. Rosenthal’s proposal, businesses would not be permitted to sell their assets while a wage dispute was underway.

“We know their tricks,” she said, referring to unscrupulous business owners. “This is an attempt to jump in front of their tricks.”

A 2015 report written by several worker advocacy organizations calculated that between 2003 and 2013, the New York State Department of Labor was unable to collect over $101 million that employers owed workers.

“It’s not surprising that people who are willing to cheat their workers are willing to transfer their assets to prevent their workers from getting what they are rightfully owed,” said Richard Blum, a staff attorney with the Legal Aid Society who works in the employment law division.

Small-business groups have opposed Ms. Rosenthal’s measure, saying it is an unnecessary and unfair burden on employers.

“It’s based on an accusation, not on proof,” said Denise M. Richardson, the executive director of the General Contractors Association. “An employee who feels aggrieved should not be able to tie up a business’s finances absent any proof that in fact they have been subject to wage theft.”

But workers say they need more powerful tools to battle employers who mistreat them.
“Right now, it is very easy for these sweatshop bosses to steal workers’ wages,” said Jin Ming Cao, who has yet to see any of the over $100,000 a judge ordered his former employer, a restaurant in Manhattan, to pay him in 2010, part of $1.5 million settlement involving a group of workers. “Even when they’re found out by a court, they just change names, it’s so easy.”

Laws allowing liens against business owners involved in wage disputes exist in half a dozen states — Alaska, Idaho, New Hampshire, Texas, Washington and Wisconsin — but only Wisconsin permits liens solely based on an allegation of wage theft, according to the National Employment Law Project. In the other states, a lien is allowed only after wage theft has been proved as a result of a lawsuit or an agency investigation, for example.

In New York, rules are already in place to protect workers in a few select industries where wage theft has been a widespread problem. In 2015, Gov. Andrew M. Cuomo imposed a requirement that nail salons carry wage bonds, a type of liability insurance designed to prevent the nonpayment of workers.

Nail salon owners have campaigned against the requirement, arguing that the price of carrying such insurance is too burdensome for small businesses like theirs. The cost varies depending on the coverage; carrying a $25,000 bond, for example, would cost an employer between $550 and $700 a year, according to providers.

Last week, lawmakers in West Virginia voted to remove, on similar grounds, a wage bond requirement that had long been in place for construction and mining industries.
On a sidewalk outside Manhattan Valley, an Indian restaurant on the Upper West Side, about 100 workers gathered recently to pass out fliers and chant that the proposed state measure, commonly known as Sweat — securing wages earned against theft — needed to become law.

When the restaurant was known as Indus Valley, a group of 10 workers sued and were awarded $700,000 in back wages by a federal judge in 2014. They still have not been paid. The owners have told the court that they sold the restaurant and that Manhattan Valley is a new restaurant with different owners. Workers and advocates claim that is a ruse to avoid payment and that the same owners still run the restaurant.

One of the workers is Efren Caballero De Jesus, 43. He delivered curries, bottled raita sauce and cleaned the kitchen at Indus Valley, often seven days a week, 10 or more hours a day, earning as little as $400 per week, for four years. “I felt degraded,” Mr. De Jesus said.

He was elated when a judge apportioned him over $180,000 of the award in 2015, but three years later, he wonders if he will ever receive anything from the two brothers who owned the restaurant, Phuman and Lakhvir Singh.

“I thought if we got the decision, we were going to collect the money,” Mr. De Jesus said. “I feel very angry.’’

Ahmed Hussain, a server answering the phone at Manhattan Valley on Thursday, said the Singh brothers no longer owned the restaurant. The Singhs could not be reached.
Copyright 2017 The New York Times Company.  All rights reserved.

Tuesday, March 14, 2017

We've moved!

We are pleased to announce that we've moved to a new location near Grand Central Terminal.  Our new address is: Shenwick & Associates, 122 East 42nd Street, Suite 620, New York, NY 10168.  Please update your records accordingly.

Our phones and e-mail addresses remain the same.  We look forward to continuing to serve you from our new location!

Tuesday, February 21, 2017

UPI: U.S. household debt near record levels, Federal Reserve report says

By Ed Adamczyk 

Feb. 17 (UPI) -- Total U.S. household debt climbed to a near-record $12.58 trillion by the end of 2016, a Federal Reserve Bank of New York report says.

February's 33-page "Quarterly Report of Household Debt and Credit" shows that every category of debt measured -- including mortgages, credit cards, student loans and auto loans -- saw an increase.

The total increase of $460 billion in 2016 was the largest in a decade. Mortgage balances, now at $8.48 trillion, made up 67 percent of the household debt.

At the current rate of growth, household debt is expected to break the 2008 record high, of $12.68 trillion, sometime in 2017. The year was marked by the start of a recession.

The report indicates mortgages still make up the bulk of household debt, but student loans are now 10 percent of the total, auto loans are 9 percent of the total and credit card debt is 6 percent. Dollar amounts rose in each category in 2016's fourth quarter. The rising debt indicates that banks are extending more credit to households.

A major difference between the 2008 and 2016 debt levels, the report said, is that fewer delinquencies were reported at the end of 2016. In last year's fourth quarter, 4.8 percent of debts were regarded as delinquent or late in payment, compared to 8.5 percent of total household debt in 2008's third quarter.
There were also 200,000 fewer consumer bankruptcies reported in 2016's fourth quarter, a four percent decline, compared to the fourth quarter of 2015.

Copyright © 2017 United Press International, Inc. All Rights Reserved. 

Thursday, February 02, 2017

Strategies for Addressing the Decrease in Value of New York City Taxi Medallions as a Result of Competition from Uber and Lyft Under New York State Debtor and Creditor Law and the Federal Bankruptcy Code

February 2, 2017

As a result of Uber’s and Lyft’s technological disruption of the transportation services market, the value of New York City taxi medallions has significantly decreased. In 2014 taxi medallions were being sold for approximately $1.3 million dollars,  Current Taxi & Limousine Commission sales reports from December 2016 and data from taxi medallion brokers indicate that the current value of taxi medallions is approximately $400,000-$600,000.  And according to a recent piece in Bloomberg News, over 80 percent of Capital One Financial Corp.’s loans for taxi medallions are at risk of default.

Many entrepreneurial immigrants and other individuals pursuing the American Dream and financial security purchased taxi medallions by borrowing money from banks or finance companies. Many of these loans were at an 80% loan to value ratio, and as a result of the decline in taxi medallion value, the debt securing the taxi medallions exceeds the value of the taxi medallions, giving the medallions a negative value. To use a term from real estate financing, these taxi medallions are “underwater.
Banks and the taxi medallion financing companies require that the borrower sign a Promissory Note, a Security Agreement and a UCC–1 financing statement so that the banks or the financing companies would be a secured creditor. Additionally, the borrower would be personally liable to repay the loan to the bank or financing company, and in some instances the medallion owner may have pledged other assets that they own as collateral for the loan, such as their house.

As a result of the decrease in value of taxi medallions, many medallion owners owe substantially more to the bank or financing company than the medallion is worth: a typical example would be an individual who owns a medallion subject to a loan of $1,000,000 and the medallion presently has a fair market value of $500,000 -$600,000, resulting in a deficiency or shortfall of $400,000-$500,000, which the medallion owner would have to repay to the bank or finance company if the medallion were sold. Most medallion owners don’t have sufficient assets to cover this deficiency, creating a financial catastrophe for the medallion owner.

There are over 13,000 New York City taxi medallions.  The New York City Taxi & Limousine Commission sales reports indicate that six medallions were sold in December 2016. Two were estate sales (meaning that the medallion owner died and their estates sold the medallion) and four were foreclosures (meaning that the medallion owner could not repay the loan and the bank or financing company foreclosed pursuant to New York State Uniform Commercial Code law to obtain possession of the financed taxi medallion). If we assume that in an average year 5% of taxi medallions are sold or transferred, that would mean that there should be about 700 medallion sales a year or 58 per month.  But if December 2016 was a representative month, medallion sales have nearly ground to a halt!

Why so few taxi medallion sales? One answer to this question may be that with the new technology of Uber and Lyft, few individuals see a viable financial future as a taxi medallion owner and driver. Another potential factor is that medallion owners may be hoping that the market will correct itself in the future and their medallions may increase in value over time, hopefully equal to or greater than the amount of the loan associated with the medallion. As we all know, “hope springs eternal” and this strategy may be the equivalent of “kicking the can down the street” – delaying or pushing off a problem that will not go away.

The purpose of this article is to present medallion owners with strategies to deal with the reduced or diminished value of the taxi medallion that they own under New York State Debtor and Creditor Law and the federal Bankruptcy Code. There are five possible strategies:

  1. The medallion owner can continue to make loan payments and hope that the value of the medallion increases over time and the increased value will allow for a sale of the medallion in the future, which will generate enough money to pay off the medallion loan. As discussed above, as a result of Uber, Lyft and other transportation service technologies, it is doubtful that the value of taxi medallions will ever return to its previous high valuations.
  2. The medallion owner can stop making loan payments and surrender the medallion to the bank or finance company or allow the bank or finance company to foreclose or repossess the medallion under New York State law. There are several problems with this strategy.  First, the bank or finance company will commence an action against the medallion owner to collect their debt. Second, after the foreclosure or repossession, the bank or finance company is allowed to seek a deficiency judgment (the difference between the amount due on the medallion loan and the value of the medallion at auction or its value at the time of repossession including legal fees and court costs) against the medallion owner. Under New York State law a judgment is enforceable for 20 years (statute of limitations) and the bank or finance company will be able to: (a) garnish the medallion owner’s wages; (b) place a lien and levy on any financial accounts owned by the medallion owner; and (c) docket the judgment against any real estate owned by the medallion owner. Third, the bank or finance company will report “relief of indebtedness income” to the Internal Revenue Service pursuant to section 108 of the Internal Revenue Code, and practically speaking the amount of the deficiency judgment (calculated above) would be deemed to be income to the medallion owner (unless an exclusion pursuant to this provision can be found).  Fourth, the judgment will be reported to credit reporting agencies, the medallion owner’s credit report score will decrease and the medallion owner will be unable to obtain a loan from another bank or finance company while the judgment is outstanding.
  3. The medallion owner can stop making loan payments to the bank or finance company and attempt an “out-of-court workout” with the bank or finance company. Under this scenario, the medallion owner would hire an attorney to negotiate a consensual return of the medallion to the bank or the finance company and any other consideration or money negotiated between the parties. The benefits of this approach are as follows: First, this arrangement is consensual and there will be no litigation between the medallion owner or the bank and finance company.  Second, a judgment will not be entered against the medallion owner. Third, the amount of relief of indebtedness income that would be reported to the Internal Revenue Service pursuant to section 108 of the Internal Revenue Code would be minimized. Under this scenario, the bank or the finance company would ask for an Affidavit of Net Worth (a statement of assets and liabilities made under oath) from the medallion owner to determine what assets the medallion owner could use pay the deficiency to the bank or the finance company if the value of the medallion is substantially less than the value of the outstanding balance of the loan.
  4. The medallion owner can file a chapter 7 personal bankruptcy. Chapter 7 personal bankruptcy is known as a “Liquidation and Fresh Start”. The medallion owner would hire a bankruptcy attorney, provide financial information to the attorney, who would then prepare a bankruptcy petition for the medallion owner and file the bankruptcy petition with the bankruptcy court. The medallion owner would go to court for a meeting of creditors with the bankruptcy attorney and then obtain a Discharge from the bankruptcy court, discharging or eliminating the loan or monies due to the bank or financing company. Under this scenario, the chapter 7 bankruptcy trustee could attempt to sell the taxi medallion or it would be surrendered to the bank or the financing company. The good news for the medallion owner is that if a debtor files under chapter 7, there is no relief of indebtedness income to the medallion owner. Additionally, with guidance from an experienced attorney, the medallion owner will be able to repair their credit in approximately a year to 18 months. However, if the medallion owner owns other valuable property or assets (such as a house, co-op, condominium or vacation property), the bankruptcy trustee has the right to sell or liquidate those assets to repay creditors. With respect to the family house, co-op or condominium unit, the medallion owner would be able to claim a homestead exemption (in the New York metropolitan area) of $165,550 for himself or herself and $165,550 for their spouse (if they are married and both parties reside in the house, co-op or condominium). Additionally, the chapter 7 bankruptcy filing would negatively impact the debtor’s credit report score. A medallion owner should consult with an experienced bankruptcy attorney before going down the path of a chapter 7 personal bankruptcy filing.
  5. Finally, the medallion owner can file a chapter 13 personal bankruptcy. Chapter 13 bankruptcy is a form of personal bankruptcy for individuals who own valuable property that they want to keep at the conclusion of the bankruptcy case, and requires that the debtor to make three to five years of payments out of their disposable income (future income minus necessary living expenses) to the bankruptcy trustee, who then makes distributions to the creditors in the case. The chapter 13 bankruptcy filing could be used by a medallion owner who wants to keep the medallion and continue to make payments to the bank or financing company, or it could be used to return the medallion to the bank or financing company and allow the debtor/medallion owner to keep the other assets or property that they own, provided that they make all of the payments scheduled in their chapter 13 plan. A chapter 13 bankruptcy filing is more favorable for credit reporting purposes then chapter 7 bankruptcy.

As you can see, there are many strategies under New York State law and federal bankruptcy law that can be utilized by a medallion owner who owns a medallion that’s underwater. Just as there is no such thing as “a one sized shoe that fits all,” each potential strategy discussed above must be reviewed and evaluated by an experienced bankruptcy and workout attorney who has reviewed the medallion owner’s financial situation and understands the medallion owner’s desired outcome. At Shenwick & Associates, we have represented medallion owners and other debtors, and are extremely experienced at doing workouts and bankruptcy filings for both individuals and companies. Those interested in setting up a meeting with Jim Shenwick can call him at (212) 541-6224 or email him at jshenwick at gmail dot com.

© 2017 James Shenwick.  All rights reserved.

Wednesday, January 25, 2017

Strategies for student loans in bankruptcy

Here at Shenwick & Associates, it is our experience that student loan debt is the fastest growing debt many people are burdened with. As of September 2016, outstanding student loan balances were $1.279 trillion and counting. This month, we're going to take another look at student loan debt, its dischargeability in bankruptcy and other potential tactics debtors can use to cope with it. Earlier this month, the New York Times reported on an effort by former students of ITT Tech to intervene in its bankruptcy to be recognized as creditors and to resolve their claims against ITT Tech for loan cancellation.

As many of our readers are aware, defaulted student loans are generally not dischargeable in bankruptcy except in special circumstances. The debtor must show that: (1) he or she cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off the student loan; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan; and (3) that the he or she has made good faith efforts to repay the loans. That was the holding in Brunner v. New York State Higher Education Services Corp., 831 F.2d. 395 (2nd Cir. 1987), the leading case on student loans and bankruptcy, and its reasoning has been adopted by most federal appellate courts.

However, non-bankruptcy remedies are available under federal and state law for student loan debtors, including loan consolidation, deferment, forbearance or a workout. These solutions may be better for many student loan debtors than bankruptcy.

  1. Loan consolidation. Most federal student loans (except private loans) are eligible to be consolidated. However, if your loans are in default, you must meet certain requirements before you can consolidate your loans. Loan consolidation greatly simplify loan repayment by centralizing your loans to one bill and can lower monthly payments by giving you up to 30 years to repay your loans. You might also have access to alternative repayment plans you would not have had before, and you'll be able to switch your variable interest rate loans to a fixed interest rate.

  1. Deferment. Deferment is a period during which repayment of the principal balance of your loan is temporarily delayed. Also, depending on the type of loan you have, the federal government may pay the interest on your loan during a period of deferment. The government does not pay the interest on your unsubsidized loans (or on any PLUS loans).

  1. Forbearance. If you can't make your scheduled loan payments, but don't qualify for a deferment, your loan servicer may be able to grant you a forbearance. With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans (including all PLUS loans).

  1. Workout. With the encouragement of federal banking regulatory agencies, some financial institutions that make private student loans offer workouts and loan modification programs. Your lender or servicer should be able to tell you the options available, general eligibility criteria and the process for requesting a workout or modification.

For more information about possible solutions to coping with your student loan debts, please contact Jim Shenwick