Tuesday, January 05, 2021

FICO and Personal Bankruptcy

 FICO and Personal Bankruptcy

When clients contact me for a consultation with respect to a personal bankruptcy filing, they will often ask how this could impact their FICO score. My reply is that the impact of a filing on their FICO score is of secondary importance; how to rehabilitate their credit after filing, is of primary importance.

A wonderful article regarding one’s FICO score was recently published at Groovy Post and can be found at:     https://www.groovypost.com/explainer/what-is-a-fico-score-why-important/?utm_source=newsletter&utm_medium=email&utm_campaign=daily 

Reader’s with questions regarding FICO should review this post.

Generally, a bankruptcy filing results from a “triggering event” such as being sued, losing a lawsuit and being subject to a judgment, failure to make a payment on credit cards, or defaulting on car lease payments. A person contemplating a bankruptcy filing usually has a FICO score of 550 to 650 and is unable to get credit.

Accordingly, a chapter 7 bankruptcy filing would not lower the FICO score since it is already low. 

However, a chapter 7 bankruptcy filing can increase a person’s ability to obtain credit. Yes, let me repeat, a chapter 7 filing can make a person more credit-worthy. 

Why? For two reasons: 1) one can only file for chapter 7 bankruptcy once every eight years and 2) the bankruptcy filing cleans up one’s personal balance sheet: liabilities are discharged in and exempt assets are kept.

Banks are aware of these factors and are thus more likely to loan money to a debtor after a bankruptcy filing with credit rehabilitation than before a filing.

So how does a debtor rehabilitate their credit? 1) By getting a secured credit card, charging the card and repaying it, and finally asking the bank or credit card company to increase their credit limit. 2) By working, reducing their expenses, and saving as much money as possible.

For these reasons, filing for bankruptcy and rehabilitating one’s credit is more important than the impact of chapter 7 bankruptcy on one’s FICO score.

People with questions regarding FICO and credit rehabilitation should contact:

Jim Shenwick, jshenwick@gmail.com, (212) 541-6224 

Thursday, December 03, 2020

New York State Uniform Voidable Transactions Act

New York has adopted a new  Uniform Voidable Transactions Act (“NYUVTA”), to replace New York State’s existing fraudulent conveyance law, which was over 100 years old.

NYUVTA is effective as of April 4, 2020. Transfers that occurred prior to April 4, 2020 are governed by NYS former fraudulent conveyance law.

NYUVTA can be found at N.Y. Debt. & Cred. Law §§ 270-281

NYUVTA provides for a 4 year statute of limitation, unlike NYS’s former  fraudulent conveyance law, which provided for a 6 year statute of limitations. 

NYUVTA also provides for a period of one year after the transfer in question to avoid a transfer to an insider—similar to the Bankruptcy Code’s insider preference reach back period of one year prior to the petition date, under 11 U.S.C. § 547(b)(4)(B)

NYUVTA eliminates the “good faith” element of a fraudulent transfer and adopts the “reasonably equivalent value” requirement of the Bankruptcy Code. 11 U.S.C. 548  

NYUVTA provides for a cause of action to avoid transfers to an insider if the insider had reasonable cause to believe that the debtor was insolvent. N.Y. Debt. & Cred. Law §274(b).

Insolvency. Plaintiffs pursuing fraudulent transfer claims to collect unsatisfied judgments will now be required to prove insolvency in connection with a fraudulent transfer claim. 

Burden of Proof.  NYUVTA provides that a creditor challenging a transfer bears the burden of establishing the elements of its claim by a preponderance of the evidence, rather than the higher "clear and convincing evidence" standard under the former fraudulent conveyance law.

Presumption of Insolvency. NYUVTA provides that consistent with section 303(h)(1) of the Bankruptcy Code,  any nonpayment of debts subject to "bona fide dispute" is not presumptive of insolvency; and (ii) expressly provided that the burden to rebut this presumption falls on the "party against whom the presumption is directed.

Conflict of Law. NYUVTA provides that the law of a debtor's place of business or if the business is conducted in more than one state, the place in which the business had its chief executive office, at the time that a transfer was made, applies to claims under NYUVTA. 

Attorneys Fees. Section 276(a) of NYUVTA allows for the award of reasonable attorney fees as an additional amount required to satisfy the creditors’ claim.

Foreclosure Sale and Reasonably Equivalent Value. Section 272(b) of NYUVTA provides that reasonably equivalent value is given “if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, non-collusive foreclosure sale

For questions regarding NYS new Voidable Transaction law please contact Jim Shenwick 212 541 6224 jshenwick@gmail.com

Sunday, November 22, 2020

Guarantee of Leases in New York State and their application when Tenants want to terminate or exit a Lease






At Shenwick & Associates, we are receiving many calls and emails these days from clients regarding leases which they would like to terminate and the principals' exposure for guarantees and good guy guarantees associated with those leases.

Most commercial tenants in New York City are organized as either corporations or LLCs and those entities are the tenant on the commercial office lease. Almost all landlords in New York City will require a principal or principal’s of the corporation or LLC to guarantee the lease.

There are two types of lease guarantees in New York. A full or complete guarantee for the payment of rent or a “good guy guarantee (“GGG”)”, which is a specialized type of guarantee, which can limit the payment of the guarantor under the lease, if certain conditions enumerated in the GGG are met.

Under the full or complete guarantee, for example if the tenant fails to make lease payments for 6 months and owes $50,000 for rent and additional rent under the lease, the Landlord can demand that the guarantor pay those monies and if payment is not made, the Landlord can sue the guarantor for $50,000.

The second type of guarantee which is known as a good guy guaranty limits the principal’s exposure under the guarantee if certain conditions are met. To be a “good guy” means that the tenant vacates the space and delivers possession to the Landlord without litigation.

An example of how GGG operates is provided below.

The GGG provides that the principal’s financial exposure under the GGG terminates when: 1. the tenants sends notice to the Landlord that it is vacating the leased space (the usual notice required is 90 to 120 days), 2. the tenant must be current on its payment of rent and additional rent, when it sends the notice to the Landlord or current on rent when it vacates the space, 3.the space must be left “broom clean” and 4. keys for the office must be delivered to the Landlord.

Under this scenario, if all 4 conditions are satisfied, the guarantor is released from liability under the Lease. However, if the 4 conditions are not satisfied the guarantor’s liability continues until the lease expires.

If the tenant is unable to pay the rent due under the lease when it vacates the principal will often pay the rent for the tenant to terminate the GGG.

It should be noted that just because the tenant vacated the space, the lease is not terminated and the tenant remains liable for rent until the lease terminates. If the tenant does not pay the rent, the landlord can sue the tenant but not the guarantor.

Under that scenario, the tenant will either close its business or file for chapter 7 bankruptcy.

As can be seen from the above examples, a GGG is a more limited form of guarantee.

The statute of limitations for a landlord to commence an action under a guaranty under New York State law is 6 years. CPLR 213(2)

Under New York custom and practice, the guarantee whether it is a regular guarantee or a GGG can be incorporated into the lease or it can be a separate document.

Under certain limited circumstances based on a NYC administrative law, certain guarantees are void see New York City Administrative Code §22-1005, which provides for the suspension of certain contractual obligations between March 7 and Sept. 30, 2020. The law is applicable to leases for restaurants, bars, retail establishments and other similar non-essential businesses that were required to cease operations due to various COVID-19-related executive orders issued by the Governor. If a guarantor can avail themselves of that law, then the guarantor may be able to avoid liability even if the tenant does not pay rent under the lease.

From a landlord’s perspective once they obtain possession of their space, they need to determine based on cost benefit analysis if they want to sue the tenant or the guarantor for rent that is due and owing. The landlord will consider the cost of litigation (legal fees and court costs) and the ability to collect on a judgment, if one is obtained.

Due to the covid virus, many Landlords are taking a wait and see attitude and not commencing lawsuits immediately, as they may have in the past.

A tenant that wished to vacate a lease should have the lease and the guarantee reviewed by an experienced attorney and the tenant and guarantor need to develop a strategy to deal with the landlord.

Any clients having questions regarding a terminating a lease or with respect to a guarantee or good guy guarantees should contact Jim Shenwick at 212-541-6224 or email him at jshenwick@gmail.com. Jim Shenwick negotiates commercial leases, practices debtor creditor law and bankruptcy law.

Tuesday, November 17, 2020

NYC Comptroller Backs Proposed Taxi Medallion Bailout Program


Originally appeared on the Patch.com


New York City Comptroller Scott Stronger has backed a proposal that would bail out taxi drivers burdened with exorbitant debt owed on medallions and worsened by the coronavirus pandemic. 

New York City Comptroller Scott Stronger has backed a proposal that would bail out taxi drivers burdened with exorbitant debt owed on medallions and worsened by the coronavirus pandemic. (Courtesy of Tim Lee)

NEW YORK CITY — New York City Comptroller and mayoral hopeful Scott Stringer has put his weight behind a proposal from the New York Taxi Workers Alliance that aims to bail out thousands of taxi drivers drowning in medallion debt amid the coronavirus pandemic.

The plan would write down outstanding loans on medallions to $125,000 and offer up funds to ensure drivers in default can sell a medallion and recuperate all or part of its cost, Stringer announced at a news conference on Thursday.

The plan would also reduce the interest on outstanding loans for medallions taxi and offer drivers a way out of the industry without landing in a financial sinkhole, he said.

"For decades, driving a cab in New York City was a road to the middle class for immigrants from around the world," Stringer said in a news conference. "But today, the medallion that once promised prosperity and stability is now a financial sinkhole."

Should a driver default on a medallion, the city would take back the medallion and place a minimum bid equivalent to the amount owed on it before offering it for sale on the free market, guaranteeing purchase of any medallions that borrowers default on.

The taxi workers alliance estimates the plan could cost the city up to $75 million, a rather small amount compared to the $810 million lawsuit Attorney General Letita James filed against the city in February for inflating the value of medallions.

The proposal also calls for monthly loan payments to be capped at less than $800 and for interest rates to be kept at or below 4 percent.

New York Taxi Workers Alliance executive director Bhairavi Desai said the bailout is the last chance the industry has to weather the pandemic, which has drastically decreased ridership and left cab drivers in a financial lurch for months.

"It is the only way drivers, the yellow cab industry is going to survive," Desai said.

Ricardo Lopez, who has driven taxis for 40 years in New York City, said he is hopeful the plan goes through. He is facing bankruptcy as he works to continue making payments on his medallion.

"I paid $60,000 [for my medallion] 40 years ago and have been paying on and off until today," Lopez said. "We are in bankruptcy, literally. If I don't get any help directly, I'm going to go out of this business soon because I can't afford it anymore. The streets are empty."

Taxi drivers in New York City watched their fares dry up as the coronavirus pandemic gave way to stay-at-home orders and business closures earlier this year.

Although ridership has been on a steady increase since the city ground to a standstill in March and April, taxi industry revenue remains down some 81 percent from where it was in 2019, the New York Times reports. Ridership was also down by about 70 percent in September compared to the year prior.

Stringer said while the proposal cannot increase ridership in the face of a pandemic, it can right a wrong and save New York City families staring down the barrel of financial ruin.

"Predatory lenders took drivers for a ride and left families in a wreckage of financial distress and despair," Stringer said. "We have a fiscal and moral obligation to make this right—and embracing this plan is a start."




Thursday, November 12, 2020

Pandemic Pushes N.Y.C. Cabbies to the Brink: ‘I Can’t Hold On’


Originally appeared on  The New York Times

While some businesses have adapted to virus restrictions, the yellow cab industry is especially suffering.


Credit...Karsten Moran for The New York Times

Before the coronavirus arrived in New York, yellow taxis were an enduring symbol of the city’s hustle, crowding the streets of Midtown Manhattan, ferrying passengers to airports and carrying tourists to boutique hotels. But eight months into the pandemic, the industry lies almost entirely crippled.

Revenue for the taxi industry is down 81 percent over the same period a year ago, according to the latest city data. That is better than in the worst days of the pandemic in March and April — but not by much.

Even as some parts of city life have returned, reliable sources of taxi passengers have not. Offices, especially in Midtown, are closed. Tourism is virtually nonexistent, and the airports are mostly empty.

“I can’t hold on, not like this,” said Vinod Malhotra, who owns his cab and has driven for 27 years through terrorist attacks, natural disasters and economic calamities. He made it through the pandemic’s peak in New York, too, but as the crisis slogs on, he is on the brink of bankruptcy. “I can make it maybe one more month, maybe two.”

Ride-hailing companies, such as Uber and Lyft, also took a hit when the city largely shut down in the spring. But they have bounced back more quickly. Revenue is now about a third lower than last year, and the chief executive of Uber, Dara Khosrowshahi, said last week on a call with investors that city ridership outside of commuting hours had returned to normal.

Bruce Schaller, a former city transportation official, said customers might be using taxis less because they believed they were more of a health risk, even though that was not the case.

“I think taxis feel like more of a public space than an Uber car or Lyft car,” he said.

Almost all drivers in every sector stopped working altogether during the peak, city data shows, in part because of the possibility of getting sick on the job, a threat that was magnified by the deaths of dozens of drivers. In a recent survey by the New York Taxi Workers Alliance, nearly half of drivers said either they or someone in their home had contracted the virus.

While many drivers were out of work, they relied on the federal government’s enhanced unemployment program, which paid $600 a week in addition to state benefits.

But those federal benefits ended over the summer, as did some other programs that kept cabdrivers afloat, including initiatives that paid taxi drivers meals to homes and provide rides for essential workers during overnight subway closures.

Aloysee Heredia Jarmoszuk, the head of the city Taxi and Limousine Commission, which oversees yellow cabs and ride-hailing companies, said the industry was steadily recovering, albeit slowly. “The pandemic hit for-hire transportation hard, but every month since March has seen increases in trips across all segments,” she said.

Still, drivers of both yellow cabs and the green cabs that operate outside of Manhattan have been reluctant to return to work. In September, an average of 3,257 yellow cabs and 575 green cabs operated each day, according to city data. In both cases, that was about 70 percent lower than in September 2019.

Several fleet owners said they had called drivers to beg them to return. Some offered discounts letting drivers rent out cabs for half the normal rate, or less. Recently, they said, drivers have begun returning.

Drivers who own their own cabs have returned even more slowly.

“My job isn’t safe. I don’t know who has had the Covid, and there are no customers anyway,” said Andrew Chen, 53, an immigrant from Burma, now Myanmar, who has owned his own cab since 2006. “So I just stay home.”

Now, a knockout punch may be coming for those drivers, who bought the city permits called medallions that allow them to own and operate a cab.

As The New York Times has reported, hundreds of drivers were already squeezed before the pandemic after being channeled into large, exploitative loans they could not afford in order to buy their medallion. Lenders suspended collections for months during the worst of the virus, but some have started to demand payments.

“People talk about the state of the taxi industry the same way they talk about the election: ‘This is the existential moment.’ But this time, it really is,” said Bhairavi Desai, who has represented drivers since the 1990s as the head of the Taxi Workers Alliance. “It really is.”

Credit...Amr Alfiky/The New York Times

In January, a city task force proposed a $500 million bailout for drivers in loans. In February, the New York State attorney general, Letitia A. James, said her office would sue the city for $810 million and use the money to compensate drivers.

That momentum evaporated as the virus exploded across the city.

On Thursday, Ms. Desai plans to unveil a proposal that could eliminate hundreds of millions of dollars owed by medallion owners and would cost the city a maximum of $75 million, much less than in previous plans.

Under the proposal, lenders would agree to reduce the amount owed by each borrower to $125,000, repaid over 20 years with a 4 percent interest rate. That structure would lower monthly payments to under $800. In return, lenders would receive a guarantee that the city would pay for any medallion loan that fails because of nonpayment, an assurance that experts say could win over lenders.

The plan is supported by Scott M. Stringer, the city comptroller and mayoral candidate. He said in a statement it could actually save taxpayer money by protecting the city from the attorney general’s lawsuit.

“This breakthrough proposal offers a responsible and necessary approach to relieve crushing debt for drivers and reduce ballooning costs for taxpayers,” he said.

City Council Speaker Corey Johnson, who has previously supported a bailout, said the Council would review the proposal but suggested that the city, whose budget has been decimated by the pandemic, may not be able to pay for a rescue package on its own. A spokesman for Mayor Bill de Blasio pointed out that the mayor has said the federal government should fund any bailout.

Several lenders who would have to agree to the deal declined to comment. They have denied wrongdoing, blaming the industry’s problems on Uber and Lyft.

The largest holder of loans now is Marblegate Asset Management, a private equity firm that bought thousands of them earlier this year. It has not collected payments during the pandemic, a spokesman said, and has voluntarily forgiven $70 million in debt.

Mr. Malhotra, the cabdriver, emigrated to New York from India in the early 1990s and bought his medallion in 2011 for $640,000. He now owes Marblegate about $435,000, he said.

He still drives 12 hours a day, six days a week, he said, but lately has had to wait longer and longer between customers. He is barely making enough to support his wife and three children, and he cannot make loan payments. He fears getting a call from his lender.

He said he might have to file for bankruptcy and surrender his medallion to a large fleet. Others are in the same situation. If nothing happens soon, he said, the city could lose an entire generation of cabby owner-drivers.

“We need help, and nobody is helping,” he said. “So day by day, it will go more down. And then it will just be gone.”

Tuesday, November 10, 2020

For Millions Deep in Student Loan Debt, Bankruptcy Is No Easy Fix


Originally appeared on The New York Times

 It’s an extremely difficult debt to discharge, and only a few hundred people a year even try. Here are the stories of some who succeeded —mostly.

With two mortgages, three children and $83,000 in student loan debt, the financial strain finally became too much for George A. Johnson and Melanie Raney-Johnson.

New bills kept piling up: The couple had to buy another car when Mr. Johnson wrecked one in a snowstorm, but their insurance didn’t fully pay off the totaled vehicle. Old debts never seemed to get any smaller, either: A mortgage modification they spent months working on fell through when the bank lost their paperwork.

And their student debt, an albatross born of aspiration, grew heavier each month.

Bankruptcy was the only way out.

“It was not an easy decision,” Ms. Raney-Johnson said of filing for bankruptcy in 2011. “It was a feeling of despair, for sure.”


Bankruptcy gives over 700,000 debtors a fresh start every year. Bills for credit cards and medical expenses can be wiped away by a few strokes of a judge’s pen, and debts that don’t vanish are reduced.

But student loan debts don’t go away as easily. For decades, politicians have slowly made them harder to discharge, while differing standards in courts across the country mean a debtor’s chances can depend on where he or she lives.

The few debtors who attempt it are subjected to a morality play unlike anything else in the world of personal finance: so-called adversary proceedings, where they must lay themselves bare in court as opposing lawyers question how much they pay for lunch or give to their church.

The Johnsons tried anyway. They had borrowed about $45,000 for Mr. Johnson’s degree in sociology at the University of St. Mary in Kansas and Ms. Raney-Johnson’s pursuit of a bachelor’s degree from the University of California, Davis. Unable to pay, they had received permission to put off their payments, but their balance nearly doubled as interest charges continued to pile up.

Mr. Johnson lost his job after they filed for bankruptcy and, unable to afford a lawyer, Ms. Raney-Johnson prepared their case. She remembers how she felt when they arrived at the Robert J. Dole Federal Courthouse in Kansas City, Kan., on a sunny September day seven years ago.

“My heart was beating, and I was sweating,” said Ms. Raney-Johnson, now in her mid-40s and a billing supervisor for a federal agency.

In 2015, the year the Johnsons got their ruling, 884,956 personal bankruptcy cases flowed through the courts. Only 674 sought to discharge student debt, according to a recent analysis by Jason Iuliano, assistant law professor at Villanova University.

The New York Times reviewed dozens of cases in which a judge issued a published opinion — the Bankruptcy Class of 2015 — to understand the pains and payoffs five years later. Some debtors are on a better course. But for others, the struggles never went away — or came back after they thought they were free.

Bankruptcy begins with debt, and student loans are the second-biggest form of household debt in the United States. More than 43 million borrowers hold over $1.6 trillion in student loans, a sum that has more than tripled in 13 years. It exceeds what Americans owe on credit cards or auto loans and trails only mortgages.

Sixty-two percent of students who graduated from nonprofit colleges in 2019 had student loan debt, according to an Institute for College Access & Success analysis. Their average balance was $28,950 — not including borrowing by their parents.

Many struggle mightily to pay: Before the government’s coronavirus relief efforts paused federal student loan payments, 7.7 million borrowers were in default and nearly two million others were seriously behind.

The solution has been a public-policy patch job.

About eight million additional borrowers use income-driven repayment plans, which can be challenging to enter.  And while the plans lower payments, borrowers accrue interest on the unpaid difference. The debt is eventually forgiven — usually after 20 or 25 years — but the forgiven amount is taxable income.

 A related program forgives the federal student loan debts of public-service workers, tax free, after 10 years, but it has been deeply troubled. Borrowers have made payments for years only to learn they were in the wrong kind of payment plan. It got so bad that Congress had to create a separate pot of money to try to fix it.

The election could give momentum to a change: President-elect Joseph R. Biden Jr. — who supported a 2005 law that made private student loans harder to discharge — has vowed to change the loan rule back if elected. But few Republicans have voiced support for a plan to change bankruptcy rules. A House bill  has one Republican co-sponsor, Representative John Katko of New York, but the Senate's version, led by Senator Richard J. Durbin of Illinois, has only Democratic support.

All the student debt poses a problem. Its weight, experts say, has macroeconomic effects, dragging on homeownership and small-business formation. But the fallout goes beyond simple economics.

There is also a mental toll.


Noelle DeLaet earned a bachelor of fine arts degree from Nebraska Wesleyan University in 2008 — the teeth of the Great Recession. She tacked on another year for a degree in English to make herself more attractive to employers. Perhaps in publishing, she thought.

She left school with $110,000 in debt: roughly $27,000 from the federal government and the rest in private loans co-signed by her mother. The $810 monthly bill, set to climb when the payment plan on one private loan expired, soon overwhelmed her.

Ms. DeLaet, now 34, landed in the child welfare field as a foster care review specialist in Lincoln, Neb. — rewarding, but not lucrative. She sent out hundreds of résumés for better-paying jobs and pleaded with her lenders to reduce her payments. Soon, the creditors started in on her mother and put her on the verge of bankruptcy, too.

 Ms. DeLaet’s breaking point came in May 2012 when she ran up against the $4,000 limit on her credit card while trying to buy a burrito at a Mexican grocery. She felt so helpless at times that she considered suicide.

“I looked all over Google for some sort of support group for others going through this,” Ms. DeLaet said. “I felt like there was no way out.”

 When Ms. DeLaet squared off in court against her student-loan creditors, they quibbled with the $12 she spent each month on recycling. She should have tried harder for a promotion, they argued. Or moved somewhere else for more money.

Judge Thomas L. Saladino bristled at that idea. In his opinion, he wrote that she lived in the state’s second-largest city, “as good a place as any to seek a better-paying job.”

The judge discharged about $119,000 in private loans, and an additional $23,000 was forgiven by one of her lenders. But her $27,000 in federal loans stuck: She’s paying those back through an income-driven repayment plan costing about $260 a month. Because she works at a nonprofit, her debt should eventually disappear via the Public Service Loan Forgiveness program.

For Ms. DeLaet, the process was worth it: She has married her boyfriend, had two children and bought a home. Her mother is an “amazing” grandmother, she said, although they still cannot discuss the past.

 “It is an untouchable subject,” she said.

The transformation in the bankruptcy rules began in 1976, with unfounded rumors.

A handful of legislators claimed to have heard about a parade of young doctors and lawyers who were trying to game the system and shed their debts while embarking on lucrative careers. The lawmakers toughened the rules, largely preventing borrowers from seeking a discharge within five years of graduation. The rules only got tougher over the next three decades.

Borrowers must show that their student loans are an “undue hardship” — a standard interpreted differently, depending on where you live. Some judicial circuits, including those in Nebraska, where Ms. DeLaet filed, have the judge review a “totality of the circumstances” for the debtor and make a decision.

Other jurisdictions employ a less flexible standard, the Brunner test, named for the case that established it. Judges must answer three questions affirmatively to discharge the debt. First, has the debtor made a good-faith effort to repay the loans? Second, is the debtor unable to maintain a minimal standard of living while making the payments? And, finally, is the debtor’s situation likely to persist?

But even jurisdictions that use the Brunner test apply it differently. Some require the judge to find that the borrowers have a "certainty of hopelessness" in paying off their debt. Other jurisdictions do not.

Here, the Johnsons may have benefited from geographic good fortune.

Lawyers for the Educational Credit Management Corporation — a nonprofit that collects defaulted loans on behalf of the federal government — examined how the Johnsons spent their $2,100 monthly income.

Every expense was scrutinized, including Ms. Raney-Johnson’s $35 monthly union dues, her $100 retirement contribution and $215 to repay loans from her retirement plan. None, the nonprofit’s lawyers argued, were necessary to maintain a “minimal standard of living.”

 In his opinion — written more than a year after hearing arguments — Judge Robert D. Berger disagreed. He wrote that the U.S. Court of Appeals for the 10th Circuit, which covers Kansas, had shifted from the most rigid interpretation of the three-part test, which he described as “an unfortunate relic.”

Judge Berger wasn’t sure how the Johnsons were subsisting at all based on their income, and he said courts shouldn’t rely on “unfounded optimism” about a debtor’s future.

“It is disconsonant with public policy and bankruptcy’s fresh start to leave debtors in virtual lifetime servitude to student loans,” he wrote.

The judge discharged their student loans: $83,000 in debt, wiped away.

“I was ecstatic,” Ms. Raney-Johnson said of the moment she received the decision letter. “I probably said some curse words.”

Their good fortune didn’t last.


 Credit...Joseph Rushmore for The New York Times

Opposing lawyers — whether they work for the federal government or for private lenders — are tenacious. Their approach can feel like bullying, if not humiliation.

When Pamela Monroe went to an Arkansas bankruptcy court in 2015, she was 57 with a student-loan balance of about $56,000. She was working in the fragrance section of a Dillard’s department store, and her lunch habits — like $6.10 at Taco Bell and $12.72 at Olive Garden — were a focus of intense interest.

 Eating out, Ms. Monroe testified, was her primary form of recreation and a midday necessity: Co-workers would sometimes steal colleagues’ lunches from the break room.

“They laughed about that when I told them,” she said. “I felt at that moment like I was a cornered animal and they were poking sticks at me.”

Ms. Monroe said she had spent her life making choices that others seemed to dictate — marrying two years out of high school and becoming a mother, as her parents seemed to want. After two divorces, she reached for higher education in a bid for independence.

She graduated from the University of Arkansas-Fort Smith with a communications degree and pursued a master’s in speech language pathology. She didn’t finish that program, leaving her with the debt but not the advanced degree. And she couldn’t seem to break out of low-paying work.

“I would have loved to pay them back,” Ms. Monroe said. “But I never could, because nobody ever saw any value in me.”

 Judge Ben Barry found Ms. Monroe’s restaurant spending excessive, but noted that she had changed jobs frequently seeking higher pay. Her income, he wrote in his opinion, about doubled between 2010 and 2015, to over $26,000.

But even a reduced budget he outlined would not leave her enough money to make her student loan payments, so he discharged just over half of her student loans.

She would most likely have been paying that off until she was in her 80s. But last year, Ms. Monroe, now 63 and dealing with osteoarthritis and other health problems, received a disability discharge for the rest of her debt.

Now all she wants to do is live out her days in her $510-a-month apartment in a retirement community. “It has a sprinkler system and an elevator, very safe,” she said.

But she hasn’t stopped thinking about the way the system and its actors — like the lawyer on the opposite side in her case — seemed to render judgment on her life choices.

“I didn’t do anything wrong,” she said. “I was just living, but I got in trouble for eating.”

In 2016, the Johnsons learned their loan discharge was being appealed by lawyers for Educational Credit Management Corporation.

Paradoxically, they were worse off because their financial situation had improved: Ms. Raney-Johnson earned a promotion, and Mr. Johnson, now in his mid-40s like his wife, found a stable government job. A year after discharging their loans, Judge Berger concluded that the couple could now “easily” maintain a minimal standard of living and reinstated their debt — which had ballooned even more because of interest charges.

Preparing to send their own children to college, the Johnsons requested another forbearance. Their balance continues to grow: It’s roughly $104,000 today.

Ms. Raney-Johnson took the final class she needed for her biology degree over the summer. But the debt was already piling up for the next generation. Their oldest, a college sophomore, expects to owe about $45,000 when she graduates. Their middle child, a high school senior, is looking at colleges now. Ms. Raney-Johnson said she and her husband — who are putting about $5,000 a year toward their daughter’s tuition — would try to remain in forbearance for now.

In August, they received a notice about an income-driven repayment plan, which would start out costing about $550 a month. From there, the cost depends on many factors, including job changes, raises and eligibility for forgiveness programs. If they’re able to get into the public service program, the debt could go away a decade after they start paying. If not, the bills could continue coming for about 20 years — right around the time the Johnsons will be trying to retire.

The experience, Ms. Raney-Johnson said, has been “disheartening.” She and her husband had run up against opposition that could keep going with little regard for time or expense, knowing that they couldn’t.

“It feels like getting screwed over by someone with a lot more power and money,” she said.

Wednesday, October 28, 2020

Record number of small-business bankruptcy filings signal COVID-19 distress


Originally appeared on Mississippi Business Journal

A record number of small businesses based in Mississippi filed for protection under Chapter 11 of the U.S. Bankruptcy Code during the second quarter of 2020.

That, of course, was when the coronavirus pandemic struck and the first lockdowns and restrictions were put into place across the nation.

Chapter 11 allows businesses to reorganize while reaching an acceptable payout to creditors.

There were 29 such filings in the second quarter, compared with six in the year-earlier period, according to U.S. bankruptcy data.

Such businesses received a stroke of legislative luck when President Trump signed a bipartisan bill that became known as the Small Business Reorganization Act in August 2019, well before the coronavirus struck in March.

Bankruptcy grunge red stamp

 The act contains Subchapter V, which was subsequently amended by Congress to increase the maximum debt to $7.5 million, up from $2.75 million for one year, till March 27, 2021 under the CARES (Coronavirus Aid, Relief and Economic Security) Act to benefit debtors, as well as creditors.

The number of cases in Mississippi are not big, but they belie a much broader toll on smaller businesses.

Dawn Starnes, director of the National Federation of Independent Business in Mississippi, said that “most of our businesses” are family owned and don't file for bankruptcy protection – they just close.

Ten or fewer employees is typical of membership, she said.

The smallest of businesses keep a tight rein on their balance sheet and manage their inventory closely, though “a lot of folks are just hanging on,” Starnes said in an interview.

Thus far, in the lower end of the business community there has not been a noticeable rise in bankruptcies, Starnes said.

The Payroll Protection Program, which granted qualified applicants $605 a week but which expired in early August, was a major help, she said.

Efforts to renew the program are being pursued, she said, but action looks doubtful till after the presidential election, she said.

Two-thirds of NFIB members file their taxes as individuals, she said.

In 2020, 97 percent are privately owned and comprise 47 percent of the private work force.

Most of the NFIB members in Mississippi have fewer that 50 employees, she said.

One of those small companies that has filed is Quality Welding and Fabrication Inc. in Columbia.

At it peak, Quality Welding and Fabrication had 125 employees.

That's before crude oil and natural gas prices dropped dramatically and demand for the company's tanks accordingly, said owner Kenny Breakfield.

The viral epidemic-induced slowdown in the economy curtailed production of crude oil in Mississippi by 50 percent, compared with a year earlier, according to Dr. Sondra Collins, senior economist for the state Institutions of Higher Learning.

Brooklyn Roasting Company files for bankruptcy, will close shops


Originally appeared on New York Post

Brooklyn Roasting Company files for bankruptcy, will close shops 

The pandemic has hit another beloved Big Apple hot spot.

Brooklyn Roasting Company, known for its colorful logo and flavorful coffee, filed for bankruptcy protection on Thursday and said it’s planning to permanently close its remaining retail locations at 50 W. 23rd St. and at 25 Jay St. in Dumbo Brooklyn, according to its Brooklyn bankruptcy court documents.

It will keep three other Brooklyn locations open, including at 200 Flushing Ave. and 45 Washington Ave., a spokesman said.

The company is also hoping to save its wholesale business, however, which sells to New York institutions like Columbia University and Goldman Sachs as well as the airports.

Founded in 2009 by Jim Munson, a former partner in The Brooklyn Brewery, BRC became a beloved New York brand with as many as seven locations across the city at its peak.

But its problems began before the pandemic as the company over-expanded in an effort to be acquired, according to the filing.

The coffee roaster had been in discussions in 2018 to be acquired for $22 million by an investment group including the former chief executive of Dunkin’ Donuts, the filing states. At the behest of its investors, BRC invested in new real estate and staff, but the acquisition never happened.

By the beginning of 2019, “BRC’s financial condition was poor,” and revenues declined for the first time in 2018 to $9.7 million, according to the filing.

Just as the company was getting its footing back — with revenues climbing to $10.3 million in 2019 — the pandemic wiped out more than half of the company’s retail sales. It’s wholesale business was also decimated.

It reported an “extraordinary COVID expense” year to date without providing details about the debt.

BRC received a $727,000 in federal stimulus loans, but the money ran out in August even as its sales remained “severely depressed,” according to the filing. Munson controls 13 percent of the company, the filing said.

“This was a one two punch,” said distressed asset expert Adam Stein-Sapir. “They had a failed acquisition and all the additional costs they signed up for in anticipation of that and then Covid.”