Wednesday, December 13, 2017

Taxi Limousine Commission (TLC) Medallion Sales Data from November 2017


Provided below is sales data from the sale of 14 taxi medallions as reported by the TLC for November 2017. The foreclosure sales prices for the two medallion sales at $750,000 are the result of foreclosure sales and those prices may be inflated because the banks “credit bid” at those foreclosure sales (they bid up to the amount of their loan balances); therefore, they may not accurately reflect the fair market value of a taxi medallion. Similarly, the estate sale at $150,000 may be too low a value because these sales reflect a sale by the estate of a taxi medallion owner who died, and those may “desperate sellers.” Medallion owners with “underwater” medallions (where the loan balance exceeds the value of the medallion) should contact Jim Shenwick to discuss their options under the law.

Price
Type of Sale
Number of Medallions
$750,000
Foreclosure
2
$750,000
Foreclosure
2
$400,000

1
$350,000

2
$350,000

2
$250,000

1
$190,874.15
Partnership Split
1
$150,000
Estate
1
$150,000

1
$0
Estate
1

Can the IRS levy my retirement accounts and Social Security payments?



Here at Shenwick & Associates, many of our clients have concerns regarding tax issues.  In some cases, tax debts can be discharged in bankruptcy (as we wrote about most recently here).  However, in many cases, the IRS has already filed a Notice of Federal Tax Lien (putting other creditors on notice of the government’s legal claim against your property), has issued a Final Notice of Intent to Levy (which means that the government is considering taking a portion of your salary, your bank accounts, your other property and/or your real estate) or may have begun levying property.  Based on the Employee Retirement Security Act (ERISA) and other federal law, ordinary creditors can’t access Social Security payments and retirement accounts and income to satisfy debts, but government agencies (like the IRS) can.  For an excellent review of the IRS’ abilities to levy on these assets, we recommend this post on pension plans and IRAs and this post on Social Security payments.

All of us at Shenwick & Associates wish you a safe and happy holiday season, and we’ll be here for you in 2018.  

Wednesday, December 06, 2017

Bloomberg: Student Loan Debt is Now as Big as the U.S. Junk Market

By Liz McCormick

U.S. student loan debt now equals the size of the $1.3 trillion U.S. high-yield corporate bond market, presenting investors with a whole different range of risks.

“Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.”

While the trend of rising defaults on student loans doesn’t pose “systemic financial risks,” it does impact household behavior as the debt load itself hurts home ownership rates, Young and Karoui said.

The share of student loan debt that is securitized, meaning it’s backed by assets and known as asset-backed securities, is about $190 billion, according to Goldman Sachs. Of that, about $150 billion is linked to loans where the repayment of the principal is guaranteed by the U.S. government.

“Most of the remaining student loan debt not in ABS format is provided to students by the U.S. government through its Federal Direct lending program,” wrote Young and Karoui.

Copyright 2017 Bloomberg L.P.  All rights reserved.

Tuesday, November 21, 2017

New York Times: When Unpaid Student Loan Bills Mean You Can No Longer Work

By JESSICA SILVER-GREENBERG, STACY COWLEY and NATALIE KITROEFF

Fall behind on your student loan payments, lose your job.

Few people realize that the loans they take out to pay for their education could
eventually derail their careers. But in 19 states, government agencies can seize stateissued
professional licenses from residents who default on their educational debts.

Another state, South Dakota, suspends driver’s licenses, making it nearly impossible
for people to get to work.

As debt levels rise, creditors are taking increasingly tough actions to chase
people who fall behind on student loans. Going after professional licenses stands out
as especially punitive.

Firefighters, nurses, teachers, lawyers, massage therapists, barbers,
psychologists and real estate brokers have all had their credentials suspended or
revoked.

Determining the number of people who have lost their licenses is impossible
because many state agencies and licensing boards don’t track the information. Public
records requests by The New York Times identified at least 8,700 cases in which
licenses were taken away or put at risk of suspension in recent years, although that
tally almost certainly understates the true number.

Shannon Otto, who lives in Nashville, can pinpoint the moment that she realized she
wanted to be a nurse. She was 16, shadowing her aunt who worked in an emergency
room. She gaped as a doctor used a hand crank to drill a hole into a patient’s skull.
She wanted to be part of the action.

It took years of school and thousands of dollars of loans, but she eventually
landed her dream job, in Tennessee, a state facing a shortage of nurses.
Then, after working for more than a decade, she started having epileptic
seizures. They arrived without warning, in terrifying gusts. She couldn’t care for
herself, let alone anyone else. Unable to work, she defaulted on her student loans.

Ms. Otto eventually got her seizures under control, and prepared to go back to
work and resume payments on her debt. But Tennessee’s Board of Nursing
suspended her license after she defaulted. To get the license back, she said, she
would have to pay more than $1,500. She couldn’t.

“I absolutely loved my job, and it seems unbelievable that I can’t do it anymore,”
Ms. Otto said.

With student debt levels soaring — the loans are now the largest source of
household debt outside of mortgages — so are defaults. Lenders have always pursued
delinquent borrowers: by filing lawsuits, garnishing their wages, putting liens on
their property and seizing tax refunds. Blocking licenses is a more aggressive
weapon, and states are using it on behalf of themselves and the federal government.

Proponents of the little-known state licensing laws say they are in taxpayers’
interest. Many student loans are backed by guarantees by the state or federal
government, which foot the bills if borrowers default. Faced with losing their
licenses, the reasoning goes, debtors will find the money.

But critics from both parties say the laws shove some borrowers off a financial
cliff.

Tennessee is one of the most aggressive states at revoking licenses, the records
show. From 2012 to 2017, officials reported more than 5,400 people to professional
licensing agencies. Many — nobody knows how many — lost their licenses. Some,
like Ms. Otto, lost their careers.

“It’s an attention-getter,” said Peter Abernathy, chief aid and compliance officer
for the Tennessee Student Assistance Corporation, a state-run commission that is
responsible for enforcing the law. “They made a promise to the federal government
that they would repay these funds. This is the last resort to get them back into
payment.”

In Louisiana, the nursing board notified 87 nurses last year that their student
loans were in default and that their licenses would not be renewed until they became
current on their payments.

Eighty-four paid their debts. The three who did not are now unable to work in
the field, according to a report published by the nursing board.

“It’s like shooting yourself in the foot, to take away the only way for these people
to get back on track,” said Daniel Zolnikov, a Republican state representative in
Montana.

People who don’t pay their loans back are punished “with credit scores
dropping, being traced by collection agencies, just having liens,” he said. “The free
market has a solution to this already. What is the state doing with this hammer?”

In 2015, Mr. Zolnikov co-sponsored a bill with Representative Moffie Funk, a
Democrat, that stopped Montana from revoking licenses for people with unpaid
student debt — a rare instance of bipartisanship.

The government’s interest in compelling student borrowers to pay back their
debts has its roots in a policy adopted more than 50 years ago.

In 1965, President Lyndon B. Johnson signed the Higher Education Act, which
created financial aid programs for college-bound students. To entice banks to make
student loans, the government offered them insurance: If a borrower defaulted, it
would step in and pick up the tab. The federal government relied on a network of
state agencies to administer the program and pursue delinquent borrowers. (Since
2010, the federal government has directly funded all student loans, instead of relying
on banks.)

By the late 1980s, the government’s losses climbed past $1 billion a year, and
state agencies started experimenting with aggressive collection tactics. Some states
garnished wages. Others put liens on borrowers’ cars and houses. Texas and Illinois
stopped renewing professional licenses of those with unresolved debts.

The federal Department of Education urged other states to act similarly. “Deny
professional licenses to defaulters until they take steps to repayment,” the
department urged in 1990.

Two years ago, South Dakota ordered officials to withhold various licenses from
people who owe the state money. Nearly 1,000 residents are barred from holding
driver’s licenses because of debts owed to state universities, and 1,500 people are
prohibited from getting hunting, fishing and camping permits.

“It’s been quite successful,” said Nathan Sanderson, the director of policy and
operations for Gov. Dennis Daugaard. The state’s debt collection center — which
pursues various debts, including overdue taxes and fines — has brought in $3.3
million since it opened last year. Much of that has flowed back to strapped towns and
counties.

But Jeff Barth, a commissioner in South Dakota’s Minnehaha County, said that
the laws were shortsighted and that it was “better to have people gainfully
employed.”

In a state with little public transit, people who lose their driver’s licenses often
can’t get to work.

“I don’t like people skipping out on their debts,” Mr. Barth said, “but the state is
taking a pound of flesh.”

Mr. Sanderson countered that people did not have to pay off their debt to regain
their licenses — entering into a payment plan was enough.

But those payment plans can be beyond some borrowers’ means.

Tabitha McArdle earned $48,000 when she started out as a teacher in Houston.  A single mother, she couldn’t keep up with her monthly $800 student loan
payments. In March, the Texas Education Agency put her on a list of 390 teachers
whose certifications cannot be renewed until they make steady payments. She now
has no license.

Randi Weingarten, president of the American Federation of Teachers, who has
worked to overturn these laws, called them “tantamount to modern-day debtors’
prison.”

States differ in their rules and enforcement mechanisms. Some, like Tennessee,
carefully track how many borrowers are affected, but others do not keep even
informal tallies.

In Kentucky, the Higher Education Assistance Authority is responsible for
notifying licensing boards when borrowers default. The agency has no master list of
how many people it has reported, according to Melissa F. Justice, a lawyer for the
agency.

But when the agency sends out default notifications, licensing boards take
action. A public records request to the state’s nursing board revealed that the
licenses of at least 308 nurses in Kentucky had been revoked or flagged for review.

In some states, the laws are unused. Hawaii has a broad statute, enacted in
2002, that allows it to suspend vocational licenses if the borrower defaults on a
student loan. But the state’s licensing board has never done so, said William Nhieu, a
spokesman for Hawaii’s Department of Commerce and Consumer Affairs, because
no state or federal student loan agencies have given it the names of delinquent
borrowers.

Officials from Alaska, Iowa, Massachusetts and Washington also said their laws
were not being used. Oklahoma and New Jersey eliminated or defanged their laws
last year, with bipartisan support.

But in places where the laws remain active, they haunt people struggling to pay
back loans.

Debra Curry, a nurse in Georgia, fell behind on her student loan payments when
she took a decade off from work to raise her six children. In 2015, after two years
back on the job, she received a letter saying that her nursing license would be
suspended unless she contacted the state to set up a payment plan.

Ms. Curry, 58, responded to the notice immediately, but state officials
terminated her license anyway — a mistake, she was told. It took a week to get it
reinstated.

“It was traumatic,” Ms. Curry said. She now pays about $1,500 each month to
her creditors, nearly half her paycheck. She said she worried that her debt would
again threaten her ability to work.

“I really do want to pay the loans back,” she said. “How do you think I’m going
to be able to pay it back if I don’t have a job?”

Copyright 2017 The New York Times Company.  All rights reserved.

Wednesday, November 15, 2017

New York Times: Why Companies Like Toys ‘R’ Us Love to Go Bust in Richmond, Va.

By Michael Corkery and Jessica Silver Greenberg

The Toys “R” Us world headquarters are on a sprawling wooded campus next to a
reservoir in Wayne, N.J., on a street that bears the name of the company’s iconic
mascot, Geoffrey the giraffe.

But in September, when Toys “R” Us filed for one of the largest bankruptcies of
the year, it did not go to nearby Newark.

Instead, the toy company followed an increasing number of corporations —
from Gymboree to a major coal company to a Pennsylvania fracking company — that
are choosing to file for bankruptcy in Richmond, Va.

In recent years, Richmond has become the destination wedding spot for failed companies. The United States Bankruptcy Court there offers several features attractive to the executives, bankers and lawyers trying to get an edge in the proceedings.




First, Richmond’s bankruptcy court offers a so-called rocket docket that moves cases along swiftly. Chapter 11 bankruptcy filings can be laborious proceedings that drag on for years. Gymboree’s bankruptcy was completed in less than four months.

Second, the legal record in that court district includes precedents favorable to
companies, like making it easier to walk away from union contracts.

But perhaps one of the biggest draws, according to bankruptcy lawyers and
academics, is the hefty rates lawyers are able to charge there. The New York law firm
representing Toys “R” Us, Kirkland & Ellis, told the judge that its lawyers were
charging as much as $1,745 an hour. That is 25 percent more than the average
highest rate in 10 of the largest bankruptcies this year, according an analysis by The
New York Times.

“The numbers are stratospheric,” said Kevin Barrett, a lawyer at the firm Bailey
Glasser, who represented the State of West Virginia in two coal bankruptcy cases
filed in Richmond.

Companies can file for bankruptcy in a court district where they have an affiliate
— a loophole that allows them to shop for the court they think will provide the best
outcome.

For an affiliate to be incorporated in Virginia, it can use a “registered agent”
with a local address, according to the state. For its bankruptcy filing, state records
show, Toys “R” Us used a Richmond affiliate whose registered agent has an office in
downtown Richmond.

Representatives for Kirkland & Ellis and Toys “R” Us declined to comment for
this article. So did a spokesman for the federal bankruptcy court in Richmond.

It’s not just the lawyers who stand to gain from the Toys “R” Us bankruptcy. The
bankers and other professionals who helped arrange $3.1 billion in new debt to keep
the company operating in bankruptcy will collect $96 million in fees, according to a
court document filed by Toys “R” Us.

Executives at bankrupt companies typically agree to the high fees, bankruptcy
experts say, because they think the cost will have been worth it if the lawyers and
bankers can save their business. Kirkland & Ellis has a long track record of getting
companies back on their feet in bankruptcy.

The two judges in Richmond are also known for their expertise. “The judges understand the complexities of large corporate bankruptcies and can handle cases expeditiously,” said Dion Hayes, a local bankruptcy lawyer.

Still, the huge fees can eat into the money that is left over for small creditors —
typically vendors, suppliers and pensioners.

In the Toys “R” Us case, dozens of suppliers of scooters, rubber duckies and
teething rings could lose millions in the bankruptcy.

Linda Parry Murphy, chief executive of Product Launchers, a distributor for
several small toy suppliers, said her clients were owed about $1.2 million from Toys
“R” Us. She worries that they may recover as little as $120,000.

“For some of these clients it was very devastating,” she said.

Nationally, professional fees for bankruptcies have been increasing about 9.5
percent a year, about four times the rate of inflation, according to Lynn LoPucki, a
bankruptcy professor at the University of California, Los Angeles.

Mr. LoPucki said the higher fees were fueled, in part, by court shopping. Lawyers advising troubled companies tend to gravitate to courts that approve their fees, he said. Judges who balk at high fees see far fewer cases.

“They become pariah courts,” Mr. LoPucki said.

Down the road, creditors in the Toys “R” Us bankruptcy can challenge how
many hours the lawyers bill at the high rates. Another check on the costs is the
United States Trustee Program, which helps oversee the process and can object if the
legal bill seems unreasonable.

The vast majority of companies — more than 76 percent — now file for
bankruptcy in a different state from where they are based, Mr. LoPucki said.
Delaware and New York — which have long been popular bankruptcy
destinations — still see the lion’s share of the filings.

But Richmond is gaining ground. In July, an article in The Virginia Lawyers Weekly declared the city a “bankruptcy haven” and quoted a local lawyer who said the high legal fees charged there would give judges in other courts a “heart attack.”the high legal fees charged there would give judges in other courts a “heart attack.”

Then in September, the court landed the Toys “R” Us bankruptcy.

Toys “R” Us started out in 1948 as a company that sold cribs and strollers out of
the ground floor of a house in Washington, D.C.

It expanded into the world’s leading toy retailer with about 2,000 stores and an
advertising jingle — “I Don’t Want to Grow Up, I’m a Toys ‘R’ Us Kid” — that could
stick in its customers’ heads like glue.

Seeing opportunity in a consolidated toy industry, the private equity investors
Bain Capital and Kohlberg Kravis Roberts and the real estate firm Vornado Realty
Trust bought the company in 2005 and loaded it up with debt that today stands at
$5.3 billion. It was a burden that proved too much to overcome.

Toys “R” Us has dozens of affiliates around the globe employing 64,000 people.

But when it came time to file for bankruptcy, the company opted for Richmond,
where its law firm, Kirkland & Ellis, had success in the past.

The law firm had represented Patriot Coal, a coal miner based in West Virginia
that filed for bankruptcy twice in four years, most recently in Richmond in 2015.

In that case, the most profitable mines went to another coal company backed by
Patriot’s lenders, while the others were closed.

Mr. Barrett, the lawyer who represented the State of West Virginia in that case,
was stunned by the fees.

“I remember five lawyers in one meeting, and I joked that meeting cost
$10,000,” he said.

This year, Kirkland worked on another bankruptcy case in Richmond —
Gymboree, the children’s clothing retailer, based in San Francisco.

Like Toys “R” Us, Gymboree was owned by private equity and was weighed siwn bt debt.

After emerging from bankruptcy in September, the company closed 350 of its
stores across the country, but the retailer is still in business.

The Toys “R” Us bankruptcy case kicked off in September at a packed hearing.
Kirkland & Ellis set the stage by playing the Toys “R” Us theme song for the judge.
The toy company, the lawyer explained, had tried to turn around its business.

But it couldn’t afford to sufficiently spruce up its stores and compete with retailers
like Walmart and Amazon because it had billions of dollars in debt. He emphasized
how Toys “R” Us had brought joy to many children and how the bankruptcy process
would help the company survive.

“We are all Toys ‘R’ Us kids,” he said.

Copyright 2017 The New York Times Company.  All rights reserved.