Tuesday, May 26, 2020

Bankruptcy may be a last resort: Here’s what to do first Houston Chronicle May 25, 2020

Miriam Goott, a bankruptcy attorney at Walker & Patterson at her home in Houston, Friday, May 8, 2020.Photo: Karen Warren, Houston Chronicle / Staff photographer
Houston attorney Miriam Goott, who represents small businesses in their bankruptcies, likes telling potential clients: “I hope to never see you again.” That’s because she’s worked out a deal with their creditors or helped them solve a problem that avoided bankruptcy altogether.

“Half the time, I play the role of a therapist,’’ she said. “What they perceive to be this huge problem generally isn’t. It’s typically one or maybe two creditors that are really the issue.”

Some attorneys predict a wave of bankruptcies in the months ahead, as the economic toll of the oil bust and the pandemic create long-term struggles for the area’s economy, according to a University of Houston Bauer College of Business forecast. Plus, the CARES Act made it even easier for small businesses to file for bankruptcy.

GROWTH OPPORTUNITY: Law firms with bankruptcy practices positioned to do well in downturn

Bankruptcy may provide much-needed relief for small businesses but it’s more of a last resort than a first resort. The good news is, for many borrowers struggling to make payments, a bankruptcy may not even be necessary.

Goott focuses her practice at Walker & Patterson on consumer and small business bankruptcy.

“I don’t feel comfortable filing a bankruptcy until we know we’ve exhausted all our options,’’ she said. Why? Bankruptcy can help beleaguered business owners sleep at night, but it also comes with risks.

Personal bankruptcy will have a significant impact on credit and borrowing costs in the future. Businesses have to open their books to public scrutiny and there are reputational risks as well.

“It’s different to hear your CPA filed bankruptcy than maybe your hairdresser,’’ Goott said. Plus, bankruptcy is expensive. Goott charges as little as $10,000 to $15,000 for a business Chapter 7, or liquidation, and fees can run as high as $300,000 for a complicated Chapter 11, or reorganization. Some law firms charge millions for complex, big-business reorganizations.

Taking stock
For a small business, the first step to avoid bankruptcy is to get a handle on its financial situation. That’s easier said than done, given the current uncertainty in the economy. But secured creditors are going to be running projections anyway, said Patrick Hughes, a bankruptcy attorney and partner at Haynes Boone in Houston.

Estimate operating costs and revenues for the next 12-week to 1-year periods, taking a look at the business’ capital structure and tax obligations, he said. “What does it take to survive in the near term?’’ Hughes said. “It’s a sobering exercise. It’s disheartening. Sometimes, you realize cuts have to be made.”

A big mistake small businesses make is failing to pay taxes. What starts as a business obligation quickly becomes a personal liability, as owners will be on the hook and even criminally responsible, bankruptcy lawyers said. Make sure some cash is set aside in case the business does need to file for bankruptcy.

A handle on debt
The details of loan terms matter. Go to creditors, focusing on secured creditors first.

“Your primary concern is the lifeblood assets of your business,” Hughes said. “If you’re a trucking company, you don’t want a lender to declare a default and exercise remedies against your trucks.”

Creditors may be hardheads and won’t want to work with you. But they are more likely to take aggressive steps if you’re not upfront and transparent about the state of your business, he said.

“If your lender doesn’t have confidence because the debtor has gone turtle and won’t give information, they’re going to be more aggressive in how they handle that,’’ Hughes said.

TOMLINSON’S TAKE: Reopen Texas economy cautiously, second COVID-19 wave would devastate

Your creditors may not be willing to negotiate. But lenders usually don’t want to foreclose on assets in a bad economy. If your business is viable and has a track record of making payments on time, generating revenue and attracting customers, that will work in your favor, Hughes said.

Goott frequently gets on the phone with creditors and negotiates a solution. Sometimes, she tells creditors that if they don’t negotiate, the debtor is going to file for bankruptcy. Sometimes, she just needs to tell creditors the reality of someone’s business and the chances of collecting on the debt.

One of Goott’s clients, for example, was personally liable for the debts of the business, and an ex-business partner was successful in obtaining a judgment in court. Goott was able to negotiate a payment plan over a 12-month period that lowered the interest rate on the debt.

Her one piece of advice: get the agreement in writing. When you’re relying on a verbal agreement, creditors can change their minds. Bank employees move on and you’re stuck with someone who doesn’t acknowledge the agreement. Or the employee might not have had the authority to offer a modification in the first place.

Litigation risk
Unsecured creditors are a different matter. They can sue you; they can get a judgment. In Texas, certain assets are exempt from most judgments, including the owner’s residence, car and retirement accounts. Creditors can garnish bank accounts, however. If that hasn’t happened yet, you may want to wait and see what happens, Goott said. An unsecured creditor may sell your debt to a collection agency. Or they may go out of business. You may never get sued.

Of course, efforts to avoid bankruptcy may be unsuccessful. If creditors simply won’t negotiate and start lawsuits and the process of acquiring assets of the company, or even personal assets, it’s possible to hand over the keys, or negotiate a transfer outside of bankruptcy. You might be able to get an injunction in court, although that’s rare, Hughes said.

A bankruptcy filing can be useful because it triggers a stay — basically, the courts block landlords and creditors from evictions or seizing assets while the case winds its way through the court system.

Congress passed the Small Business Reorganization Act last year, making it easier and less costly for small businesses to file. For example, business owners normally have to pay creditors in full under a Chapter 11 reorganization to retain ownership. But a small business Chapter 11 allows small businesses to pay less than 100 percent in exchange for shelling out three to five years of the business’ disposable income instead.

No creditors’ committees are allowed, which helps lower the cost of the bankruptcy.

The CARES Act, which passed in March, also raised the cap on total debt for a small business Chapter 11 from $2.7 million to $7.5 million, allowing many more businesses to qualify. “This creates a huge opportunity for small business to restructure their debt,’’ Hughes said.

Often, bankruptcy can be avoided altogether. Goott doesn’t make any money that way. But she builds trust with potential clients. “The best thing I do for (businesses) is to give them the ability to narrow in and focus on the problem,” she said.

Gallery Sues Landlord, Claiming Covid-19 Shutdown Voids Lease New York Times May 24, 2020

Gallery Sues Landlord, Claiming Covid-19 Shutdown Voids Lease
The lawsuit contends that since the Venus Over Manhattan gallery is closed by government orders during the pandemic, the lease should be terminated.

In early March, the Venus Over Manhattan gallery on the Upper East Side mounted an exhibition of paintings, drawings and wall reliefs by the artist Roy De Forest, the biggest presentation of his work in New York City since 1975.

But the show’s prospects may have been limited when Gov. Andrew M. Cuomo of New York banned most gatherings and ordered nonessential businesses to close by March 22 as part of an effort to limit the spread of the coronavirus.

Now the gallery is suing its landlord, arguing that the governor’s actions provide a basis to end its lease, which it says started in 2011 at $54,000 per month, and recover its deposit of $365,000.

“As a result of the Covid-19 pandemic, Governor Cuomo issued a number of executive orders, which by March 29, 2020, completely frustrated the very purpose of the lease,” a lawyer for the gallery wrote in a complaint filed last week in Federal District Court in Manhattan, adding that the gallery therefore “considers the lease terminated.”

The dispute is between companies run by two prominent art collectors, both with significant business experience and neither averse to attention.

The gallery’s owner, Adam Lindemann, who once ran an investment firm, briefly set an auction record for Jean-Michel Basquiat in 2016 when he sold a painting by the artist at Christie’s for $57.3 million.

The gallery’s Madison Avenue building is listed as a property of the real estate company run, with a partner, by Aby Rosen. He has displayed several Picassos in his Manhattan home and, in 2014, riled some neighbors by erecting on his Long Island estate a 33-foot, painted bronze sculpture of a naked pregnant woman with an exposed fetus.

Mr. Margolin said by email that the lawsuit involved “a dispute between a commercial tenant and a landlord” about whether a lease default had taken place. A representative for Mr. Rosen’s company, RFR Holding LLC, declined to speak about the suit.

The complaint filed by the gallery says that it considers the lease to have been terminated as of April 1. On March 25, it added, the gallery informed the landlord that it was vacating the premises on or about July 1 and demanded the return of the $365,000 deposit.

On April 8, the complaint states, the landlord declared a default under the lease and on April 23 seized the deposit.

The gallery claims it is entitled to end the lease based on two arcane legal doctrines: “frustration of purpose,” described in the complaint as when an unforeseen event destroys the reason for a contract; and “impossibility of performance,” which the complaint says allows performance of a contract to be excused if governmental activities render that performance impossible.

Joshua Stein, a commercial real estate lawyer not involved in the lawsuit, said that frustration of purpose is one of several doctrines businesses have considered asserting during the pandemic as a basis to withhold rent or walk away from a lease.

Thursday, May 21, 2020

A Wave of Small Business Closures Is on the Way. Can Washington Stop It? Bipartisan proposals address weaknesses of a hastily passed aid program New York Times May 21, 2020

A Wave of Small Business Closures Is on the Way. Can Washington Stop It?
Bipartisan proposals address weaknesses of a hastily passed aid program.

One of the great threats to the post-pandemic economy is becoming clear: Vast numbers of small and midsize businesses will close permanently during the crisis, causing millions of jobs to be lost.

The federal government moved with uncharacteristic speed to help those businesses — enacting the Paycheck Protection Program, with $669 billion allocated so far.

But there is a problem. The structure of the program is not particularly well suited to the type of crisis that millions of businesses face. The program may have bought businesses some time, but in its current shape it will not enable many of them to remain solvent long enough to emerge from the other side of the pandemic in some viable form.

Rather, it is more tailored to what the crisis looked liked when shutdowns first took place in the olden times of March 2020, when it seemed that business closures would be a short-term blip and everyone might be able to get back to normal by summer.

It was intended to cover eight weeks’ worth of expenses, of which 75 percent must apply to payroll, for firms with under 500 employees. Now it is looking likely that many businesses will face revenue shortfalls for many months.

For loans made under the program to be fully forgiven, an employer must maintain pre-crisis employment levels. Now it’s clear many businesses will permanently shift to smaller staffing levels to remain viable, such as restaurants operating at partial capacity.

The program is technically available to companies that make a good-faith assertion that they need help to support operations. But it doesn’t distinguish between firms with mild and temporary disruptions and those facing threat of permanent closure.

Moreover, the structure of the program, which provides a recipient with a Small Business Administration-backed loan that is then forgiven if certain conditions are met, could make some business owners reluctant to take advantage. They might fear that if they run afoul of the government’s rules, they will have even more debt heaped on top of a failing enterprise.

“The risk is that they’ve spent more money on this program than anyone has ever spent on a small-business program in world history, but haven’t changed the trajectory of permanent small-business closures,” said John Lettieri, president of the Economic Innovation Group, a think tank that advocates business dynamism. “If the patient has a gaping chest wound and you give him a bandage, it’s better than nothing but probably isn’t going to keep the patient alive.”

When Congress enacted the Paycheck Protection Program as part of a $2 trillion aid package in March, it still seemed plausible that the disruption to the economy would be temporary. And the P.P.P. was devised to ensure that employers kept as many people on their payrolls as possible. But that has often acted at cross-purposes with the goal of having businesses ultimately emerge as viable enterprises.

“The P.P.P. makes sense in that incentivizing employers to keep people on payroll and compensating them for doing that is valuable, especially given the overwhelming of the unemployment insurance system that was happening,” said Adam Ozimek, chief economist of Upwork, a website for freelancers. “Conceptually that makes sense, but the issue is trying to do that and at the same time address the issue of massive small business insolvency that we are increasingly facing.”

Mr. Ozimek is dealing with the tension firsthand. In addition to his job as an economist studying labor markets, he is co-owner of Decades, a bowling alley, restaurant and bar in Lancaster, Pa. Before the pandemic, it employed the equivalent of 35 full-time employees, but it now needs fewer workers while takeout food is its only business. It has taken a P.P.P. loan.

Leading economists have identified the mass closure of service-oriented businesses as a particular risk for the medium-term future of the economy. One survey of 5,800 small businesses conducted in late March found that only 47 percent expected to still be in business at the end of the year if the crisis lasted four months.

“The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes,” Jerome Powell, the Federal Reserve chair, said in a speech last week. “These businesses are a principal source of job creation — something we will sorely need as people seek to return to work.”

There’s not much the government can do if a health crisis renders some types of businesses, especially those where large groups of people gather, nonviable indefinitely. But there are several ideas circulating on Capitol Hill to try to address the potential of mass small business closures.

Senator Michael Bennet, Democrat of Colorado, and Senator Todd Young, Republican of Indiana, plan to introduce a bill text Thursday on what they call the “Restart Act.” Businesses would receive loans to finance six months’ worth of fixed operating costs and payroll, offered at a low interest rate — no payments due for 12 months — and with a seven-year term.

In their bill, the government would forgive the share of the loan devoted to payroll, rent and other fixed expenses based on the company’s revenue decline. So it would act as a loan for companies that are able to weather the downturn, and act as a grant for those more severely affected.

Another group of senators, including the Republican Mitt Romney of Utah and the Democrat Joe Manchin of West Virginia, have proposed legislation that would build on the Paycheck Protection Program, in part by expanding the period for loan forgiveness from eight to 16 weeks.

In the House, Representatives Dean Phillips, Democrat of Minnesota, and Chip Roy, Republican of Texas, have offered legislation that would, among other steps, extend the duration of P.P.P. loans.

The bipartisan nature of the bills shows this issue doesn’t cleave along the usual ideological divides. A key question is whether whatever comes next will enable businesses that are in a deep hole now — but have a viable future once the public health crisis recedes — to get from Point A to Point B.

And it would particularly help if any new or revised P.P.P. program would have clearer rules of the game and greater predictability about who is truly eligible and under what terms.

“To be kind to both Republicans and Democrats who came up with this plan on the fly, the magnitude of the shock is so much larger than what anybody thought it was at the time,” said Joe Brusuelas, chief economist at RSM, an accounting firm that serves midsize companies. “It makes sense to revisit the program.

“Right now what we’re hearing from our clients is that they are frustrated and confused.”

Monday, May 18, 2020

New York City's Taxi Drivers Are in Peril as They Brave the Coronavirus and Uncertain Futures

From: Time
By: Melissa Chan
May 15, 2020

Every cent matters to Kim Jaemin, a cab driver in virus-ravaged New York City, whose diet has been reduced to instant noodles despite working 14-hour shifts, seven days a week.

Since the coronavirus pandemic emptied the streets of passengers, the 58-year-old from South Korea has been living on about $65 a day. He buys near-expired, discounted food that he rations to last the week. Two meals of the day consist of the cheapest brand of ramen noodles he can find. “Forget about nutrition,” he says.

On May 2, of the seven total passengers he picked up, five did not tip. The other two tipped him less than $3 each. While most of his fellow cab drivers have quit—either because they fear getting sick with COVID-19, which has killed dozens of their colleagues, or because they feel it’s useless to scour a deserted city for riders—Kim says he has no choice but to work more. “I have to make every possible penny, nickel and dime,” says Kim, who lives alone in Queens and scribbles every fare and tip he gets into a notepad.

“The only way I could survive,” he adds, “I have to work every day.”

That’s the reality for hundreds of New York City’s taxicab drivers who remain on the road, searching for scarce fares as ridership hits record lows. The number of cab rides in the city fell from about 506,000 during the first week of March to roughly 28,500 during the week of May 4, according to the Metropolitan Taxicab Board of Trade (MTBOT), the city’s largest taxi group, which represents more than 5,500 yellow cab owners. The city’s Taxi & Limousine Commission (TLC) did not disclose its data, but the MTBOT, which represents about half of the entire taxi industry, says fares across its fleets have dropped about 94%.

“It’s a staggering number that we’ve never experienced before,” MTBOT spokesman Michael Woloz says. “Theaters are dark. Restaurants are closed. All of the traditional fares have disappeared.”

Outside of Grand Central Terminal at 9 a.m. on a recent Monday, cabs are lined up, but most are waiting in vain. The world-famous transportation hub is near-vacant, and silence has replaced the usual clamor of rush-hour traffic. “It’s like a movie right now,” Mohamed Eleissawy, a 63-year-old taxi driver, says of the abandoned metropolis.

Amid a drop in fares, thousands of drivers have stopped working. In the first week of March, about 3,660 taxi drivers were still on the road, according to the MTBOT’s tally. Now, the group has counted fewer than 600. Thousands have signed up to deliver meals to sick or elderly residents for $53 per route as part of a new citywide program meant to help vulnerable populations and earn drivers more cash. By repurposing their jobs, the TLC said these drivers are “helping us to ensure that no one goes hungry.” But like Jaemin, many of the city’s cab drivers are inching closer to severe hunger themselves.

A new survey by the New York Taxi Workers Alliance (NYTWA), which represents about 23,000 taxi and rideshare-app drivers, found more than 82% of drivers have run out of money to buy food or say they will soon reach that point. Out of 919 drivers surveyed, more than 700 said they were unable to pay their rent or mortgage in March and April. The Independent Drivers Guild, which represents more than 80,000 for-hire drivers in the city, said 45% of its members in late April had asked for help securing food. Nearly 70% of the guild’s drivers said they were unable to make rent or mortgage in April, with more saying they won’t be able to pay in May.

The TLC said it’s still tracking fatality figures, but Bhairavi Desai, NYTWA’s executive director, says at least 50 drivers have died from COVID-19 so far. “It’s heartbreaking,” Desai says.

Desai fears the pandemic will be a “breaking point” for many drivers already suffering financial hardships due to competition with ride-sharing apps and crushing loans they took out to buy medallions, which are permits the city requires to own a yellow cab. In 2018, at least eight professional drivers in the city died by suicide, which advocates blamed on crippling debt. The industry had been showing signs of improvement, especially after the spate of suicides grabbed the attention of local lawmakers, according to Desai and Woloz. Then the pandemic hit.

“The yellow cab is the quintessential symbol of New York City,” Desai says. “But these are men and women, who for every time we think the bottom has finally settled in, it falls out all over again.”

Now, the futures of cab drivers are more uncertain than ever. As new COVID-19 cases slowly drop in New York City, advocates are hopeful the century-old taxi industry will rebound as it did after the Sept. 11 terrorist attacks and after Superstorm Sandy in 2015. “New York City is the biggest and best,” TLC spokesman Allan Fromberg says, “and we expect the future to be bright again in time.”

Desai and Woloz say yellow cabs could even become a vital part of the city’s recovery, transporting both people and goods as some commuters avoid crowded subways. “They know how to navigate through a crisis,” Desai says. “Through every city disaster, drivers have kept working.”

But predictions among some in the workforce are grim. “The coronavirus is the last nail in the yellow cab coffin,” says 36-year-old driver Khurshid Ahmed, who owes $370,000 on his medallion loan. “I am tied to this job until my last breath,” he adds. “I am not seeing any future.”

Jacob Smith, 49, from Ghana, agrees. Standing on 5th Ave., which was devoid of pedestrians at what used to be rush hour, the yellow cab driver and father of two has little hope. “When the doors open, I’m not sure people will come back,” he says. Smith is set on changing careers as soon as someone, anywhere, will hire him. “New York is famous for the cab,” he says, “but corona will be the end.”

Almontasir Ahmed Mohamed, 33, is also weighing a career switch after driving a green cab for six years. He’s studying engineering science at a Kingsborough community college part-time and wonders when he will see his family again in his home country of Sudan. “I stopped thinking about my future,” he says. “The virus has made me confused about my plans.”

For Kim, though, the U.S. has been his home for almost 40 years, so going back to South Korea is not an option. Neither is giving up his cab, because driving is all he has known. “This is my job until I die,” he says. “There is no other job I could do.”

But as he jeopardizes his own health by getting behind the wheel, Kim says at least one passenger a day will make a racist remark, telling him to go back to his country or speak better English. “I don’t think the city respects us like doctors and nurses, the police, the subway workers,” he says. “We are essential workers, too.”

“Without the yellow cabs,” he adds, “the city cannot move.”

Friday, May 15, 2020

Warning: Never hire a debt settlement company

Tuesday, May 12, 2020

Small Business Reorganizations under New Subchapter V-copy of James Shenwick Outline to be presented at World Wide Land Transfer on Wednesday May 27 2020 at 10.00AM to 11.30AM

Small Business Reorganizations under
New Subchapter V of Chapter 11
of the Bankruptcy Code

Through the World Wide Land Transfer
~ All of Their Classes are Complimentary

Go to this link to Register:
The purpose of this class will be  to discuss  the changes to
the new Subchapter V of the bankruptcy code and its impact
on small business reorganizations.
On August 23, 2019, President Trump signed into law the
Small Business Reorganization Act of 2019 (“SBRA”),
Pub. L. No. 116-54 (2019). Congress increased the cap
to $7,500,000 for the next year as part of the Coronavirus
Aid, Relief, and Economic Security (CARES) Act from
SBRA became effective on February 19, 2020
These provisions are not a new chapter of the bankruptcy
code, but a subchapter of chapter 11 of the bankruptcy code
and the existing chapter 11 sections will apply unless
otherwise modified by Subchapter V. 
There are 3 chapters of the bankruptcy code that are used in
this district and they are chapter 7, chapter 13 and chapter 11. 
Subchapter V is a subchapter of chapter 11 and not a new
chapter of the Bankruptcy Code 
In the way of background, chapter 7 cases are liquidations
for individuals or businesses, chapter 13 are organizations
for individuals (not businesses) where the individual uses
3 to 5 years of future earnings (disposable income) to pay
creditors and chapter 11 are reorganizations or liquidations
for individuals or businesses.
As will be discussed below Subchapter V is a blend of
chapter 11 and chapter 13 and the goal of the law is to
make it easier and cheaper for small businesses
to reorganize!
In this district, 90% of chapter 11 filings are unable to
reorganize and those cases are converted to chapter 7
(closed by the Bankruptcy Trustee) or dismissed as
“no asset” cases. 
This change in the law is an attempt by Congress to
simplify the reorganization process and reduce the
cost of small business chapter 11 filings. 
Subchapter V can be found at 11 U.S. Code sections 1182
through 1195.
  1. Debtor. Section 1182(1) defines a Debtor (individual or
    business) as a person engaged in commercial or business
    activities that has aggregate noncontingent liquidated
    secured and unsecured debts as of the date of the filing of
    the bankruptcy petition of not more than $7,500,000 not
    less than 50 percent of which arose from the commercial
    or business activities of the Debtor.
    1. Noncontingent liquidated debt, both secured and
      unsecured debt must not exceed $7,500,000.
    2. 50% or more of the debt must have arisen from
      commercial or business activities of the Debtor.
    3. Non-contingent debt refers to a debt that is owed
      at present without any acts needing to occur first.
    4. Contingent debt is one in which there is a
      'triggering event' or some condition
      precedent for the debt to exist.
    5. Subchapter V does not apply to publicly traded
      companies 1182(B)(ii) 
II. Trustee. The United States Trustee (a government agency
which is a component of the Department of Justice)
shall appoint a standing trustee as a Trustee in a
case filed under this chapter 1183(a)
  1. What are the roles of a Trustee in Subchapter V?
1. Appear and be heard at the status conference before
the Bankruptcy Judge assigned to the case
2. Attend plan confirmation hearing; 
3. Ensure that the Debtor commences making timely
payments required by a plan confirmed under
this subchapter; 
4. If the Debtor ceases to be a Debtor in possession,
perform the duties specified in section 704(a)(8) and
paragraphs (1), (2), and (6) of section 1106(a) of this
title, including operating the business of the
Debtor and 
  1. Facilitate the development of a consensual plan of
    reorganization-this is a new role for a Trustee.
    Developing a consensual plan is primarily the role
    of Debtor’s counsel. 
  1. If the plan is confirmed under the service of the trustee in
    the case shall terminate when the plan has been
    substantially consummated  ⸹1183(c)(1)
III. Operation of the Business. The Debtor shall have the
right to run its business  ⸹1184.
IV. Removal of the Debtor ⸹1185. On request of a party in
interest, and after notice and a hearing, the court shall
order that the Debtor not be a Debtor in possession
for cause, including fraud, dishonesty, incompetence,
or gross mismanagement of the affairs of the Debtor.
V. Property of the Estate.  If a plan is confirmed, property of the
estate includes, includes  property pursuant to section 541 of
the Bankruptcy Code and (1) property that  the Debtor
acquires after the commencement of the case,  (2) earnings
from services performed by the Debtor after the date of
commencement of the case but before the case is closed, 
dismissed, or converted to a case under chapter 7, 12,
or 13 ⸹1186.
  1. The Debtor shall remain in possession of all property
    of the estate ⸹1186(b).
VI. Status Conference ⸹1188
  1. Not later than 60 days after the entry of the order for
    relief under this chapter, the court shall hold a status
    conference to further the expeditious and economical
    resolution of a case under this subchapter ⸹1188(a).
  2. Not later than 14 days before the date of the status
    conference under subsection (a), the Debtor shall file
    with the court and serve on the trustee and all parties
    in interest a report that details the efforts the Debtor
    has undertaken and will undertake to attain a consensual
    plan of reorganization. ⸹1188(c)
VII. Filing of the Plan § 1189
  1. Only the Debtor may file a plan under this
    subchapter. 1189(a) 
  2. The Debtor shall file a plan not later than 90 days
    after the order for relief under this chapter, except that
    the court may extend the period if the need for the
    extension is attributable to circumstances for which
    the Debtor should not justly be held accountable 1189(b).
VIII. Contents of Plan  § 1190
(1)  A plan filed under this subchapter shall
include— (A) a brief history of the business
operations of the Debtor; (B) a liquidation analysis;
and (C) projections with respect to the ability of
the Debtor to make payments under the proposed
plan of reorganization; 
(2) Shall provide for the submission of all or such
portion of the future earnings or other future
income of the Debtor to the supervision and control
of the Trustee as is necessary for the execution
of the plan; and 
(3) Notwithstanding section 1123(b)(5) of this title, may
modify the rights of the holder of a claim secured
only by a security interest in real property that is
the principal residence of the Debtor if the new
value received in connection with the granting of
the security interest was— (A) not used primarily
to acquire the real property; and (B) used
primarily in connection with the small business
of the Debtor ⸹1190(3) allows a Debtor, pursuant
to a confirmed chapter 11 plan, to modify a
mortgage on the Debtor’s principal residence
if the debt was not used to acquire the residence
and used primarily with the operation of the
Debtors small business-this is a major change
in bankruptcy law since first mortgages on a
Debtor’s principal residence cannot be modified.
IX. Confirmation of Plan § 1191
  1. The Court on request of a Debtor shall confirm the plan
    if the plan does not discriminate unfairly, and is fair
    and equitable, with respect to each class of claims
    or interests that is impaired under, and has not
    accepted, the plan. 1191(b)
  2. With respect to a class of secured claims  (A) the plan
    provides that all of the projected disposable income
    of the Debtor to be received in the 3-year period,
    or such longer period not to exceed 5 years as the
    court may fix, beginning on the date that the first
    payment is due under the plan will be applied to make
    payments under the plan; or (B) the value of the property
    to be distributed under the plan in the 3-year period, or
    such longer period not to exceed 5 years as the court
    may fix, beginning on the date on which the first
    distribution is due under the plan, is not less than
    the projected disposable income of the
    Debtor. 1191(c)(2)
  3. The Debtor will be able to make all payments
    under the plan 1191(3)(A)(i) 
  4. The term “disposable income” means the income
    that is received by the Debtor and that is not
    reasonably necessary to be expended— (1)
    for— (A) the maintenance or support of the
    Debtor or a dependent of the Debtor; or (B)
    a domestic support obligation that first becomes
    payable after the date of the filing of the
    petition; or (2) for the payment of expenditures
    necessary for the continuation, preservation, or
    operation of the business of the Debtor.
    1191(d)(1) & (2)
X. Discharge. If the plan of the Debtor is confirmed, as soon
as practicable after completion by the Debtor of all
payments due within the first 3 years of the plan, or
such longer period not to exceed 5 years as the court
may fix, the court shall grant the Debtor a discharge
of all debts §1192
XI. Modification of Plan § 1193
A. The Debtor may modify a plan at any time before
confirmation  ⸹1193(a)
B. If a Plan has been confirmed under  ⸹1191(a),
the Debtor may modify the plan at any time
after confirmation of the Plan and before
substantial consummation of the Plan  ⸹1193(b)
XII. Payments § 1194
A. Payments and funds received by the trustee shall be
retained by the Trustee until confirmation or denial of
confirmation of a plan. If a plan is confirmed, the trustee
shall distribute any such payment in accordance with the
plan. If a plan is not confirmed, the trustee shall return
any such payments to the Debtor 1194(a).
B. The above payment mechanism is similar to chapter 13,
where the Debtor makes monthly payments to the
Trustee who in turn pays creditors.
C. Prior to confirmation of a plan, the court, after notice
and a hearing, may authorize the trustee to make
payments to the holder of a secured claim for the
purpose of providing adequate protection of an
interest in property. 1194(c)
D. ⸹1194(c) allows a secured creditor to make a motion
before the Court for adequate protection payments if the
Debtor is not making payments to the secured creditor, or
the secured creditor does not have an “equity cushion”. 
XIII.  Transactions with professionals.  A person is not
disqualified from employment by the Debtor solely
because that person holds a claim of less than $10,000
that arose prior to commencement of the case. § 1195
A. The above provision is helpful to professional(s) who are
owed money by the Debtor (less than $10,000) who do
not want to waive that claim (meaning they want to be paid
by the Debtor) and they want to represent the Debtor in the
Subchapter V proceeding.
XIV. Impaired Creditors. Subchapter V allows a Debtor to
confirm a Plan without the need for obtaining the
consent of a class of “impaired” creditors as is required
under Chapter 11.
  1. An impaired creditor is  a creditor who is paid or accepts
    less than what they are currently owed.
XV. United States Trustee Quarterly Fees have been
eliminated. Other than the initial filing fee, fees are
essentially eliminated, making the process much less
expensive to the petitioner.
XVI. Creditor committee requirement has been eliminated
(only formed for cause in Subchapter V cases)
XVII.  Cram Down has been simplified. In Subchapter 5, if the
creditors can’t agree on the petitioner’s proposed plan,
an application can be made to the Bankruptcy Court
Judge to order the plan approved.  
A. Cram Down standard-The success of the proposed
plan need only be more attractive to the unsecured
creditors than would a conversion to a Chapter 7
liquidation plan (creditors get $1 more under
Subchapter V)
XVIII. Documents needed to file under Subchapter V-the
entity will require the business’ most recent balance
sheet, statement of operations, cash flow statement, a
federal income tax return (or a sworn statement that
such a document does not exist). 
XIX. Plan must be submitted for approval within 90 days.
However, the Bankruptcy Court may extend this
deadline “if the need for the extension is
attributable to circumstances for which the
Debtor should not justly be held accountable.”
(in the COVID-19 environment, courts are likely
to grant extensions liberally)
XX. Disclosure Statement not required. The Act eliminates
the requirement that a disclosure statement is filed,
thereby reducing costs to the Debtor and streamlining
the plan confirmation process. However, the Debtor
must include in the plan certain information customarily
included in a disclosure statement, such as a short history
of the Debtor, a liquidation analysis, and financial
projections reflecting the ability of the Debtor to make
the payments required by the plan
XXI. Trustee-under Subchapter V, a trustee is automatically
appointed, but the Debtor retains control of its assets
and operations. trustees have the authority to investigate
the Debtor’s financial affairs. The trustee’s primary
function is to facilitate a consensual plan among the
Debtor and its creditors, almost like a mediator would
facilitate a settlement in litigation. The trustee’s duties
will include facilitating the development of a consensual
reorganization plan, appearing at major hearings in the
case, and ensuring that a Debtor commences making
timely payments under a plan. 
A.Under the supervision of the Department of Justice,
approximately 250 Subchapter V trustees – mostly
attorneys and accountants – were selected out of
over 3,000 applicants. Most Subchapter V trustees
had recently received their first case assignments
when the COVID-19 pandemic hit.
XXII. Timing of Subchapter V Filing. Small businesses
should carefully consider the timing of a Subchapter V
filing: the Borrower Application Form promulgated by
the U.S. Small Business Administration indicates that
applicants presently subject to a bankruptcy proceeding
are ineligible for the Paycheck Protection Program
XXIII. Plan Term -Consistent with current practice in
Chapter 13 cases, a reorganization plan will
customarily be three years in length but
may be as long as five.
XXIV. Impaired Class. Under Subchapter V, a plan can be
confirmed without the vote of an impaired accepting
class, providing that the plan does not discriminate
unfairly and is deemed “fair and equitable” as to
each class of claims. To meet the “fair and equitable”
requirement under the Bankruptcy Code, Subchapter V
requires that all of the Debtor’s projected disposable
income during the length of the plan be applied
to plan payments.
XXV.  Elimination of the Absolute Priority Rule.
Subchapter V  eliminates the Absolute Priority Rule,
under which a Debtor cannot retain an ownership
interest in its assets unless all creditor claims are
paid in full or the Debtor contributes new value to
fund the Plan. Under Subchapter V no “new value”
contributions are required as a condition of the
Debtor’s asset retention. 
XXVI. Single Asset Real Estate Cases (“SARE”)-if a
Debtor elects to file a bankruptcy case as a SARE,
then they cannot also elect Subchapter V treatment.
Single asset real estate is defined by the Bankruptcy
Code as a single property or project that generates
substantially all of the Debtor's gross income
(§ 101(51B), Bankruptcy Code). If the Debtor's only
business is operating the property and the property
generates substantially all of the Debtor's income, a
SARE typically includes the following types of
properties: Shopping centers, Office buildings,
Industrial and warehouse buildings and
Apartment complexes.
Subchapter V Bankruptcy Provisions can be found at:

1. § 1181. Inapplicability of other sections
2. § 1182. Definitions
3. § 1183. Trustee
4. § 1184. Rights and powers of a Debtor in possession
5. § 1185. Removal of Debtor in possession
6. § 1186. Property of the estate
7. § 1187. Duties and reporting requirements of Debtors
8. § 1188. Status conference
9. § 1189. Filing of the plan
10. § 1190. Contents of plan
11. § 1191. Confirmation of plan
12. § 1192. Discharge
13. § 1193. Modification of plan
14. § 1194. Payments
15. § 1195. Transactions with professionals
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